Preamble

The House met at half-past Two o'clock

PRAYERS

[MADAM SPEAKER in the Chair]

Oral Answers to Questions — NATIONAL HERITAGE

Arts Funding

Mr. Clapham: To ask the Secretary of State for National heritage when he next plans to meet the Secretary General of the Arts Council to discuss Government funding for the arts.

The Parliamentary Under-Secretary of State for National Heritage (Mr. lain Sproat): My right hon. Friend meets the Secretary General of the Arts Council from time to time to discuss a range of issues.

Mr. Clapham: The Minister must be aware that there is a mounting crisis in arts funding. For example, the proposed budget for next year is to be 2 per cent., or £5 million, less. That proposal will have a devastating effect. The former Secretary of State for National Heritage said only a few days ago in The Guardian that the reduction in funding will not be spread evenly across the board, but will fall heavily on the smaller companies, which means that some of them are likely to be put out of business. How does the Minister intend to ensure that those smaller companies are protected and are able to continue to make their cultural contribution to the community?

Mr. Sproat: The hon. Member mentions an important point. This year there will be an increase in the Arts Council grant in aid of £5 million, or 2 per cent. Next year it will be cut by 2 per cent. At a time of economic difficulties, the Arts Council cannot remain immune to those difficulties but must shoulder its burden like everyone else. Much of the unease being expressed results from the Arts Council's deciding on new artistic priorities, not from the amount of funding that it has been given.

Mr. Renton: May I draw a comment from my hon. Friend on the reported decision of the Arts Council to ask three of the great orchestras to submit themselves, their musical standards and future programming to a judge for examination and for a decision on whether they should continue to receive public funding? If the musical experts at the Arts Council cannot reach a decision on that matter, what is the precise purpose of the Arts Council?

Mr. Sproat: It is a matter for the Arts Council to decide how to deal with its funding. We want London to have world-class orchestras and I am afraid—or perhaps I am not afraid—that it is a matter entirely for the Arts Council.

Mr. Sheldon: Surely the Minister cannot be immune from commenting on such important matters. He actually set up the Arts Council, which was established to advise on where the funding should go. If it makes a botch of it and relies on a judge to take over such responsibilities, surely he has something to say on the matter.

Mr. Sproat: I do indeed have something to say about it. There is a firm tradition of an arm's-length relationship between the Department and the Arts Council in these matters. If the Arts Council chooses to make its decision by taking outside advice, that is a matter for the Arts Council.

Mr. Jessell: What is the latest position on Arts Council support for the London City Ballet?

Mr. Sproat: My hon. Friend mentions an important subject. As I understand it, the Arts Council was perfectly prepared for the London City Ballet to go into liquidation. Now that a new company appears, possibly, to be rising from the ashes of the old, the Arts Council has said that it will not even pay the touring grant, which previously it was going to pay. I cannot openly give my views on the subject to the Arts Council because of the arm's-length principle, but I see no reason why my hon. Friend should not.

Mrs. Clwyd: The Minister obviously has a convenient memory. At the last general election, the Conservatives promised to maintain support for the arts, but they have ratted on that promise, just like everything else. Does the Minister feel any concern about the probability that one, and possibly two, of London's orchestras will he forced to close, and that several of our famous regional theatres are now under threat of closure because of Government cuts, or is the Minister totally apathetic about the wreckage being inflicted on the arts by the Government's policies?

Mr. Sproat: Perhaps I could remind the hon. Lady that funding for the arts has gone up by 45 per cent. under the Government. That certainly is doing our bit by the arts. It is true, as I said in answer to an earlier question, that next year there will be a cut of 2 per cent. only. The reason that so many provincial theatres are at risk is not the 2 per cent. cut but the fact that the Arts Council, in its wisdom, has decided that it does not want to concentrate as much on drama in the future. I hope that the Arts Council will read Hansard and see the strength of hon. Members' feelings about its decision.

Mr. Anthony Coombs: Will my hon. Friend confirm that, over the past five years, the Arts Council grant from the Government has actually risen by 20 per cent. in real terms? Will he state, particularly in relation to London City Ballet, that the Arts Council should be far more flexible about the way in which it allocates funding? It is disgraceful that, out of a classical ballet budget of £15 million, the council cannot find even £250,000 a year to give a touring grant to an established ballet company.

Mr. Sproat: My hon. Friend makes an extremely good point, and I hope that he will make it forcefully to the Arts Council. He is correct in pointing out that the Government spend a great deal on the arts. At a time of economic pressure, the Arts Council grant this year is £225·6 million, which is a great deal of money.

Independent Television

Mr. Kirkwood: To ask the Secretary of State for National Heritage what steps he proposes to take to protect the independence of the smaller independent television companies; and if he will make a statement.

Mr. Etherington: To ask the Secretary of State for National Heritage what discussions he has had with the Independent Television Commission about the rules concerning the ownership of C3 franchises.

The Secretary of State for National Heritage (Mr. Peter Brooke): I am reflecting on the discussions I have had with both the Independent Television Commission and the ITV companies about the ownership rules and other issues.

Mr. Kirkwood: Does the Secretary of State acknowledge the value of a genuinely produced and transmitted independent commercial television service to local areas such as my own in south-east Scotland? Will he say more about the discussions? Is he aware that the small independent companies are expressing great concern at the lack of protection that may exist for them after 1 January? Will he give an assurance that they will have a degree of protection similar to that afforded to the larger companies under the existing rules? Will he confirm that an article in today's Financial Times indicating that he will make an announcement in September is something like the truth?

Mr. Brooke: I am happy to join the hon. Gentleman in his commitment to, and endorsement of, the importance of regional quality. The Broadcasting Act 1990 was written in such a way as to ensure that the ITC made certain of that. As to protecting the small companies, the hon. Gentleman will know how the legislation is written. The meeting that I held on 14 June, on which I am still deliberating, obviously related to events after 1 January in a number of directions.

Mr. Etherington: No, 7, Madam Speaker.

Madam Speaker: Questions Nos. 2 and 7 are linked.

Mr. Etherington: Things are not always too good on a Monday, Madam Speaker.
When the Secretary of State speaks to the heads of ITV companies, will he make them aware that many people in the industry are deeply concerned about the prospect of an internal carve-up and a free-for-all? It is also widely felt by many in the industry that this is merely a self-propagating effort by those with a vested interest in the matter. Will the Secretary of State ensure that those who are stating that in the region of £100 million can be saved by doing away with duplication between various companies are made to explain filly to the Secretary of State's satisfaction that that is the case, and that it is not just another example of the companies advancing their own views to their own advantage?

Mr. Brooke: The rules relating to ownership are written into the 1990 Act. I acknowledge—as I did to the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood)—that my meeting with ITV companies on 14 June related to that and to other matters. As to the £100 million savings, that issue was raised at the 14 June meeting and I have had subsequent correspondence with a number of those present pressing just the point that the hon. Gentleman made.

Mr. Simon Coombs: My right hon. Friend will be well aware that there is, to put it mildly, some dispute between the chairmen of the various ITV companies over whether the moratorium at the end of the year is likely to lead to a greater risk of a foreign takeover of some of the smaller ITV companies. Does he have a view on that dispute and if he has concluded that there is some likelihood of a foreign takeover, does he propose taking any action to prevent it?

Mr. Brooke: The issues that relate to what happens after 1 January came up at the meeting that I held on 14 June, so I was made fully aware of the views of individual Channel 3 companies about that proposition. We are of the view that our rules should be on all fours with those of the rest of the Community and we are taking an interest in those countries where we feel that the rules are not drawn up on the same basis as our own.

Mr. John Marshall: Does my right hon. Friend accept that immunity from takeover and protectionism for existing management do nothing for the quality of programmes or for the efficiency of companies?

Mr. Brooke: I could not possibly disagree with my hon. Friend. On the other hand, if we were to proceed with the Broadcasting Act 1990 as currently written, companies in this country would be in a slightly different position from those in other Community countries after 1 January.

Mrs. Clwyd: As there is some dispute, will the Secretary of State tell us the net amount he expects the ITV companies to pay to the Government this year compared with the amount paid under the old levy system? Is he aware that Yorkshire Tyne Tees Television is to axe a further 188 jobs in yet another cost-cutting exercise? Does that not confirm what the Labour party has repeatedly said about the discredited Broadcasting Act 1990 and the damage being inflicted on ITV? When will the Secretary of State understand that staff loyalty, staff continuity and, above all, adequate staffing levels are critical to maintaining programme quality?

Mr. Brooke: I am, of course, aware of the commentary in one of today's newspapers about the specific amounts that ITV companies are paying in levy this year, although I have not yet done my own detailed cross-analysis of those figures. The hon. Lady knows that I share her views on the need to maintain the production base of television in Britain and that there are many aspects to that question beyond those that she has mentioned.

Mr. John Greenway: Does my right hon. Friend agree that strict enforcement of programme obligations, the current ownership structure and the regionality of ITV make it all the more important that the House should have regard to the funding of ITV? Does he accept that commercial pressure is being brought to bear on ITV at the present time? As a constructive way to resolve that problem, would he consider bringing forward the review of the ITV franchise arrangements to coincide with the review of the BBC charter?

Mr. Brooke: I understand my hon. Friend's proposition, but it would be premature to take a decision of that nature. On the other hand, I mentioned to the hon. Member for Cynon Valley (Mrs. Clwyd) a moment ago my


concern that we maintain the production base in this country. That larger issue will certainly inform our thinking.

Broadcasting Act 1990

Mr. Sedgemore: To ask the Secretary of State for National Heritage what plans he has to seek to amend the Broadcasting Act 1990.

Mr. Brooke: I have no present plans to amend the Act.

Mr. Sedgemore: As the stability of commercial television is now threatened by takeover mania, and as Granada has expressed an interest in taking over London Weekend Television, as has Carlton, and in taking over Central, Yorkshire and Tyne Tees, will the Secretary of State guarantee that there will be no change in the legislation to enable major regional companies to be taken over by national monopolistic conglomerates? Should not people like Jerry Robinson, the tea boy at Granada, concentrate on programme making rather than on pushing up Granada's share price for his personal benefit?

Mr. Brooke: In answer to an earlier question, I paid tribute to the issue of regional quality and to the fact that the legislation is written in such a way that the Independent Television Commission can ensure that that quality is maintained. On the rest of the question, I have made it clear that the issues that we discussed at the meeting with the heads of the Channel 3 companies on 14 June covered a wide agenda. It was a lively but good-natured debate. All aspects of the issue were discussed constructively by all parties.

Mr. Streeter: In any future amendments to the Broadcasting Act 1990, will my right hon. Friend consider introducing provisions to ensure that the Arts Council continues to fund excellent municipal theatres such as the Theatre Royal in Plymouth, which has attracted more people per £1 of grant—

Madam Speaker: Order. What has this to do with broadcasting? The hon. Gentleman is referring to an earlier question.

Mr. Streeter: In any amendment to the Broadcasting Act, is it possible to include a provision whereby the Arts Council can be made to ensure that it supports mainstream municipal theatres—

Madam Speaker: Order. I understand the hon. Gentleman's enthusiasm, but I think that we should. now move on.

Mr. Bryan Davies: Does the Secretary of State accept that the fact that the heads of a number of major independent television companies seek to change the fundamental terms of their franchises and the fact that Richard Branson is seeking to alter the waveband on which he has received his franchise throw into question the whole operation of the Broadcasting Act? Is that not a comment on the fact that the legislation is so misguided that it is creating an absolute shambles in the broadcasting industry?

Mr. Brooke: Taking the second premise relating to Virgin Radio and the waveband first, in any negotiation for an exchange of the waveband, it would not be within the gift either of Mr. Branson or of anybody with whom

he sought to effect such an exchange to make that exchange. Control over the wavebands remains with the Radio Authority, with which he should therefore treat. The purpose of the meeting on 14 June—at which, I hasten to say, the smaller companies were as interested in being present as the larger companies were—was to discuss a way forward, looking at the larger objective of maintaining the quality and the production base of British television.

London Hospitals

Mr. Cohen: To ask the Secretary of State for National Heritage what proportion of London hospital facilities are listed buildings.

Mr. Sproat: There are some 90 hospitals in the 12 central London health districts, of which 25 are subject to 80 statutory listings.

Mr. Cohen: Did not the 1987 report show that there were 770 listed hospitals in Britain, of which 11 were grade I—the equivalent to this place and Westminster abbey—a further 58 starred grade II and all the rest of historic significance? Has not Save Britain's Heritage been fiercely critical of the neglect of many hospitals, including the neglect emanating from the Government? Is not the position set to get a lot worse with the closure of hospitals in London? Will the Minister step in as part of his departmental responsibilities to save London's heritage hospitals such as St. Bartholomew's, or is the neglect part of a conspiracy with health Ministers, business-oriented health managers and developers, who see listed hospitals only as the source of a quick buck?

Mr. Sproat: The hon. Gentleman asks a very important question. The answer is that the Secretary of State for Health is responsible for ensuring that the heritage aspects of hospitals are maintained. Only last week, we issued general guidance to those who find that they are in charge of listed buildings, but who find that there is no longer a commercial use for those buildings. We are trying to reach an agreement whereby people understand that for the buildings to be preserved for commercial use one or two of the statutory listings may have to be changed. My Department has also set up a task force between the Department of Health and ourselves to ensure that the considerations that the hon. Gentleman mentioned are taken into account.

Mr. Ward: Is my hon. Friend aware that many of us appreciate the work being done by his Department in listing London hospitals and many other buildings? Will he proceed with extreme caution, however, before committing public money to buildings that clearly have no use or no useful life to come?

Mr. Sproat: We will certainly be careful. That is why I mentioned that where it is possible to maintain a building with a commercial use, we quite understand that there may have to be one or two changes in the statutory listings in order that the building as a whole may continue. As to my hon. Friend's question about hospitals, that is primarily a question for the Secretary of State for Health.

Mrs. Dunwoody: Is the Under-Secretary of State seriously saying that those hospitals that have been maintained over centuries, such as St. Bartholomew's, will


not be given any special concessions, and if it is in the commercial interests of the Secretary of State for Health to let that building go, presumably because it is a city centre site for which she can obtain a large amount of money, he will do nothing to ensure protection for existing buildings? If that is his implication, we shall begin to understand rather more clearly why the Secretary of State for Health is so anxious to get rid of that major centre of importance.

Mr. Sproat: I am absolutely not saying that. I am saying that the Secretary of State for Health has a duty to look after the heritage buildings within her remit. Her Department spends £500 million a year on the maintenance of a current estate. Within that, the listed aspects of the building will be protected. If the buildings are sold off, that is a matter for her. The heritage aspects will absolutely not be neglected either way.

Performing Arts

Mr. Luff: To ask the Secretary of State for National Heritage what representations his Department has received about the impact on British performing arts of local authority discretionary grant policy.

Mr. Sproat: Since the establishment of the Department of National Heritage last year, we have received more than 300 letters about local authority discretionary grant policy and its impact on students of dance and drama.

Mr. Luff: Does my hon. Friend agree that the British performing arts make an enormous contribution not only to cultural life but to the economy? Is he aware that the local education authority discretionary grant policy in many counties, including my county of Hereford and Worcester, means that many talented young people are unable to play their full part in that success story? Does he share my concern at the damage that that is doing to the future success of the British performing arts?

Mr. Sproat: My hon. Friend has been a persistent and assiduous campaigner for this important subject. It is certainly true that most of the letters and representations that we have had have shown that an awful lot of students are not able to take up places because local authorities have declined, for whatever reasons, to fund them—

Mr. Tony Banks: Your lot did it.

Mr. Sproat: The hon. Gentleman should wait. I accept that there is a serious problem. It may well be that there is a genuine shortage of money, although local authorities were given sums that the Department of the Environment thought sufficient. To settle the matter, the National Foundation for Educational Research will examine precisely what the facts are. Depending on what those facts are, the Secretary of State and I will speak to the Department for Education, which has a lead in the matter, to see what needs to be done to sort it out.

Ms Glenda Jackson: I welcome the Minister's response to the previous question—that there could indeed be a financial shortfall, which is having a deleterious effect on those young people who manage to gain the very few and highly contested places in drama schools—but does he agree that there is little or no point in any young person taking a place in a drama school if the Arts Council is

allowed to pursue its stated policy of closing 10 regional theatres? Is there any aspect of the cultural life of this country for which the Government take responsibility?

Mr. Sproat: We certainly take responsibility and the £225·6 million that we shall give to the Arts Council this financial year is proof of that. That sum will be spent at the decision of the Arts Council. It has taken decisions that are nothing to do with me. Indeed, I am prevented by the arm's-length principle from lavishing so much as a breath of praise or dispraise upon it. It is up to the Arts Council. If the hon. Lady disagrees with the Arts Council's policy of moving away from drama and music towards contemporary dance, she should lose no opportunity of telling it so.

Mr. Dickens: Is the Minister aware that in the borough of Oldham, we have a theatre workshop, the Oldham Coliseum theatre and one of the best repertory companies in the United Kingdom? Does he agree that it is important not only that funding reaches those worthy causes but that all hon. Members who purport to support the arts should help the National Lottery, etc. Bill complete its passage through Parliament before the summer recess?

Mr. Sproat: I hope that the Bill will get its Royal Assent before the recess. Otherwise, I agree, as so often, with my hon. Friend's words of wisdom.

Mr. Corbett: Does the Minister care that 23 theatre in education companies in England and Wales, including the Collar and Tie in the constituency of the hon. Member for Worcester (Mr. Luff), have lost around £1 million in grants this year, mainly because of cuts in what the Government will allow local authorities to spend, and that they face further cuts because of money being taken from the Arts Council grant? Does he understand that this may see the end of the unique blend of theatre and educational drama, mainly for children in areas where no other theatre exists? Will he set up an independent inquiry into how theatre in education companies can be funded from next April or is he content simply to see another slice of our theatre wither away?

Mr. Sproat: The issue arises on a later question and if the hon. Member will contain himself in patience, he will get a powerful answer at that point. However, I fear that I would be trespassing on your patience, Madam Speaker, if I gave a longer answer on that now.

National Lottery

Mr. Ian Bruce: To ask the Secretary of State for National Heritage when he expects the first moneys to be paid out by the National Lottery Charities Board.

Mr. Brooke: We hope that money will be available to be paid out by late 1994 or early 1995 for charities and the other good causes.

Mr. Bruce: I am grateful to my right hon. Friend for that answer. Does he know that I am being pressed by the local Liberal Democrats in my constituency to get that money through as quickly as possible? Can he ensure that all parties in the House understand that all my constituents, from whichever party they come, are keen to see that money come through as quickly as possible so that it can go to all the excellent sports and arts projects that they wish it to support?

Mr. Brooke: I am delighted to hear that the Liberal Democrats of South Dorset are pressing to get the Bill through as early as possible, as their party in the House voted against Third Reading of the Bill.

Mr. Enright: Will the Secretary of State kindly tell us whether there is any particular significance in the archaic use of the word "monies" in the question as originally tabled, and more particularly in the archaic use of that form of the plural, or is it merely a dry run for the Government's English test for 14-year-olds?

Mr. Brooke: As the hon. Gentleman may know, in terms of such textual criticism, his question should be addressed to my hon. Friend and not to me.

Tourism, West Yorkshire

Mr. William O'Brien: To ask the Secretary of State for National Heritage if he will make a statement on the promotion of tourism in West Yorkshire.

Mr. Sproat: That is a matter for the English tourist board through its strategy for support to the regions, and for the Yorkshire and Humberside tourist board through its strategy for meeting local needs and priorities.

Mr. O'Brien: I accept the Minister's reply, but does he accept that there are problems with the Yorkshire and Humberside tourist board and the English tourist board over financing? West Yorkshire, with its loss of jobs both in traditional industries such as mining, textiles and engineering and in other sectors, is looking for Government help towards tourism. Is the Minister prepared to meet the leaders of West Yorkshire council to discuss tourism and allow them to put to him their concerns over lack of resources to promote tourism throughout West Yorkshire?

Mr. Sproat: Yes, I will glady meet a delegation if the hon. Gentleman wishes to bring it along. Let me take this opportunity to congratulate his region on the fact that the latest figures show 7·2 million overnight visitors in his area. Other areas in the United Kingdom have been more badly hit during the recession, but the excellence of the tourist facilities in his area ensured that the number of visitors there were kept up.

Mr. Robert Banks: Does my hon. Friend agree that the project to house the royal armouries in a brand new museum in Leeds will be, when completed, one of the largest and most important international tourist attractions in this country? Does he also agree that all political parties should come together to get the project built as soon as possible?

Mr. Sproat: I agree with my hon. Friend. The armouries in Leeds would be a tremendous addition to the city's tourist attractions. I hope that the project will go ahead as my hon. Friend said.

Mr. Pendry: The Minister is to receive a copy of the Coopers and Lybrand report that has been commissioned by the English tourist board steering committee, on which sits one of his representatives. If that report condemns the cuts in funding to the English tourist board that were made by the Minister's predecessor, will he take the best

initiative to encourage tourists to Normanton, Bradford, Halifax and elsewhere in West Yorkshire by being bold, brave and sensible enough to restore the funding?

Mr. Sproat: So far as West Yorkshire is concerned, I note that two applications for tourism renewal grants have been received from Wakefield and Dewsbury. No doubt both those applications will be considered properly by the tourist boards.
Although it is true that overall funding to the British Tourist Authority and the English tourist board has been cut, the British Tourist Authority's grant will be maintained. We believe that, within the cuts that have been made necessary by the economic climate, there should be a slight shift away from centralised English tourist boards to those run by the regions.

Lady Olga Maitland: While continuing to promote tourism in West Yorkshire, will my hon. Friend also continue the campaign against deregulation? Does he agree that unnecessary regulation in the hotel and entertainment industries has been crippling, and has resulted in increased costs to the customer?

Mr. Sproat: My hon. Friend makes a good point. In West Yorkshire, and elsewhere in the country, there is no doubt that the competitive edge of our tourist industry—when compared with other countries—has been worsened by the heavy regulatory burden. I am determined to remove as much of that unnecessary burden as possible and to make our industry more competitive when compared with other countries.

Theatre in Education

Mr. Hall: To ask the Secretary of State for National Heritage what plans he has to meet representatives of theatre in education to discuss funding.

Mr. Sproat: theatre in education companies have traditionally been funded by local education authorities together with the Arts Councils and regional arts boards. Any discussions on funding are most appropriately undertaken with those agencies.

Mr. Hall: The Minister will be aware, from the question put some moments ago by my hon. Friend the Member for Birmingham, Erdington (Mr. Corbett), that theatre in education companies are under threat. Some theatres have closed and others are facing closure because they have lost revenue, because of council tax capping placed by the Government on local authority spending, because of the lack of money that is available through the local management of schools and because of the threatened cuts in Arts Council grants.
The Minister should recognise that theatre in education provides a unique dimension to education in many thousands of schools throughout the country. Does he agree that the shortfalls—amounting to £1 million—should be met by the Government? Will he instigate a full public inquiry into the funding of theatre in education for the years to come?

Mr. Sproat: No to the hon. Gentleman's last question, no to his second last and yes to his third. I agree that theatre in education can make an important contribution to schools, but those involved now must realise that they must sell themselves to individual schools because of the


local management of schools process. If they do that, and if individual schools want to have theatre in education, the projects will continue.

Independent Television

Mr. Barnes: To ask the Secretary of State for National Heritage what representations he has received concerning the operation of the Independent Television Commission.

Mr. Brooke: This year, I have received five representations from four hon. Members about various aspects of the ITC's activities.

Mr. Barnes: I do not know whether any of those representations backed the ITC's position on "News at Ten". I hope that the Minister will support that position and that adopted by the National Heritage Select Committee, which wants the programme to remain at 10 o'clock, so that political news—including 10 o'clock votes from this House—sports news, news from America and hard-hitting news generally can be properly dealt with. We need news at ten, not nudes at ten.

Mr. Brooke: The obligation of the Channel 3 companies is
simultaneously to broadcast high quality news programmes dealing with national and international matters at peak viewing times".
The hon. Gentleman has drawn the attention of the House to the action of the chairman of the ITC, who will be awaiting a response from the Channel 3 companies.

Oral Answers to Questions — ATTORNEY-GENERAL

Magistrates Courts

Mr. Booth: To ask the Attorney-General what proportion of cases pursued by the Crown Prosecution Service in magistrates courts in the last 12 months have resulted in a conviction.

The Attorney-General (Sir Nicholas Lyell): For the year ending 31 March 1993, 97·6 per cent. of cases that proceeded to a hearing in the magistrates court resulted in either a guilty plea or a conviction.

Mr. Booth: Is my right hon. and learned Friend satisfied that those excellent figures have been achieved by the Crown Prosecution Service adopting the test of a reasonable prospect of conviction, not some higher esoteric standard?

The Attorney-General: My hon. Friend raises an important point. I am satisfied of that. It is extremely important to make it clear that when the CPS reviews the evidence to determine whether there is a sufficiency of admissible, substantial and reliable evidence, it applies the test of a realistic prospect of conviction—not, as is sometimes suggested, a higher test.

Mr. John Morris: Is the Attorney-General aware that, despite a 50 per cent. increase in recorded crime since 1987, the number of cases that the police are instructed by the CPS to drop has nearly doubled? What role has the Treasury had in creating a situation in which arrested people are allowed to walk free because of the cost of bringing them to trial? Will the right hon. and learned

Gentleman confirm that 32 per cent. of cases are dropped on public interest grounds? Has he agreed to that? Will he define it in the context of decisions taken by CPS officers? Will he publish the instructions given to them; and what is the lowest grade of officer allowed to take such a decision on public interest grounds?

The Attorney-General: I am not aware of any case that has been dropped on the ground of cost. The shadow Home Secretary has visited the Crown Prosecution Service this morning, I am glad to say, and has been able to hold discussions and form his own views on these very matters. Meanwhile, I am glad to have been able to answer the right hon. and learned Gentleman clearly in this regard.
When cases are discontinued on public interest grounds, cost is not the reason. It will be well understood by the House that it is not in the public interest to prosecute every elderly person or every frail person or everyone suffering from some injury or every case for which there is sufficient evidence.

Mr. John Greenway: Does my right hon. and learned Friend agree that our magistrates courts are capable of dealing with a great many more cases, especially those that go to the Crown court? Does he agree that the recommendation by the royal commission to end the right to trial by jury would end the scandal of 83 per cent. of those electing trial by jury pleading guilty? Is not the reason for that the fact that policemen are spending too much time writing up reports and preparing cases for court, which keeps them off the streets?

The Attorney-General: My hon. Friend rightly draws attention to the 83 per cent. of defendants who choose to go to the Crown court and then to plead guilty once they get there. That imposes what the royal commission has suggested are unreasonable costs and a waste of resources on the system.

London Borough of Bromley

Mr. Dowd: To ask the Attorney-General when the Crown Prosecution Service received reports from the Metropolitan police into two separate allegations of fraud within the social services and environmental health departments of the London borough of Bromley; and whether the Crown Prosecution Service now intends to prosecute.

The Solicitor-General (Sir Derek Spencer): An initial report concerning the social services Department was received on 17 October 1991. Following further police investigations, an additional lengthy report was submitted on 20 May 1993. Meanwhile a report concerning the environmental health department was received in February this year. Police inquiries continue and decisions on prosecution will be made as soon as possible.

Mr. Dowd: Is the Solicitor-General aware that it is now almost two years since this matter was first reported to the Metropolitan police, and almost a year since it was first reported to the chief executive and monitoring officer of the London borough of Bromley? Is not it a disgrace that it has taken so long for a decision to be reached on a matter of such importance and significance, and that we are still told today that decisions are awaited? Will the Solicitor-General give an assurance that incompetence and corruption in local government will be pursued as


vigorously as possible, wherever they arise, and not soft-pedalled in areas that the Government and the Conservative party regard as particularly sensitive?

The Solicitor-General: The hon. Gentleman is quite right that all cases ought to proceed with expedition. Where there are allegations of fraud and corruption, as in this case, it is doubly important that they are investigated rigorously. It is not unusual for such fraud to be carried out in a secretive way by those involved, and, for that reason, the police sometimes find that it takes a considerable time to investigate. I am sure that the hon. Gentleman agrees that it is not in the interests of justice for defendants to he tried on half-baked inquiries, which are then found to be without substance when fully tested at trial.
As to political considerations, I remind Opposition Members of the words of Mr. Peter Archer, when he was Solicitor-General, which were contained in a Fabian pamphlet. I do not suppose many Opposition Members read Fabian pamphlets nowadays. Mr. Archer said that no Law Officer takes into account party considerations.

Mr. John Marshall: Does my hon. and learned Friend accept that there is widespread concern about corruption in local government? Does he further accept that many hon. Members would like to see an inquiry into the corruption in local government, in view of the deplorable events in Lambeth?

The Solicitor-General: A number of inquiries are being held up and down the country into local government dishonesty and fraud. There are two cases of alleged fraud in the Bolsover district council, in which one defendant has already been convicted and the other has been tried and a retrial of his case is awaited.

Asil Nadir

Mr. Winnick: To ask the Attorney-General what representations he has received in the last two years over the Nadir case.

The Attorney-General: I have explained to the hon. Member in a written answer this afternoon, of which I have given him notice, that a total of eight Members have written or spoken to me or my predecessor about this case. Of these, four have made representations during the past two years.

Mr. Winnick: It is now eight hon. Members and not seven. Although the Attorney-General is reluctant to reveal their names, can he explain why the majority of hon. Members who made representations are very reluctant for their identities to be known? What were their reasons for making those representations in the first place? Is not there a particular responsibility on those who championed the cause of Mr. Nadir in the House of Commons, strongly to urge him to return so that he can put his case in open court? Does the Attorney-General accept that the money given by Mr. Nadir to the Conservative party should be returned promptly because it comes from a very dubious source?

The Attorney-General: I do not accept the factual premise of the first part of the hon. Gentleman's question. Most people, I think, have made it clear whether they wrote—[HON. MEMBERS: "No, they have not. Name

them."] However, as to contributions to any particular political party, the hon. Gentleman knows that that is not a matter for me. This case makes it abundantly clear that it does not produce any favour or affection either way, whatever party may be involved.

Mr. Dykes: Does my right hon. and learned Friend agree that, while not condoning melodramatic practices by any of its operatives, hon. Members should not, in general, attack the Serious Fraud Office? Should we not all support it and give it greater resources in the fight against fraud?

The Attorney-General: My hon. Friend may have seen the remarks in the royal commission's report about the importance of the work of the Serious Fraud Office, both in maintaining high standards of financial probity in the financial services industry and in making it possible for anyone who abuses the privileges that apply to that industry, thereby damaging investors—often small investors—to be brought to justice more effectively.

Lenient Sentences

Mr. Garnier: To ask the Attorney-General how many cases have been referred to the Court of Appeal on grounds of leniency of sentences in the past 12 months.

The Solicitor-General: In the 12 months to 30 June 1993, the Attorney-General applied to the Court of Appeal for leave to refer 33 sentences for review, including five in Northern Ireland. Of the 19 references so far determined by the court, 16 have resulted in an increased sentence.

Mr. Garnier: Does my right hon. and learned Friend accept that the Court of Appeal's judgments in those referred cases have already been of considerable assistance to sentencers at first instance? In the spirit of open government, will he publish the letters that he received from Opposition Members who voted against the Criminal Justice Act 1991, which included that power, so that we may know that those who voted against it now seek to make use of it?

The Solicitor-General: That power is now widely accepted as important and necessary and we often see it referred to by judges in their sentencing remarks. I shall resist the temptation that my hon. Friend has extended to me but, on Second Reading in 1988, an Opposition Member described that power as "sheer cruelty". He appears to have a poor memory because, only a short time ago, he wrote to my right hon. and learned Friend asking him to refer the sentence in the Newport case to the Court of Appeal and invite it to pass a severe sentence. However, following our usual custom of confidentiality, I shall spare his blushes and shall not publish his letter.

Oral Answers to Questions — OVERSEAS DEVELOPMENT

Elephants

Mr. Tony Banks: To ask the Secretary of State for Foreign and Commonwealth Affairs what resources he will make available for elephant conservation projects during the current financial year.

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Mark Lennox-Boyd): We estimate that conservation projects supported by the aid


programme, which may include benefits to elephant conservation, will amount to £2·85 million in the current financial year.

Mr. Banks: I noticed that the Minister said only "may". We need to know precisely how much money is being paid out to protect, wherever possible, the welfare of elephants. Is he aware that, because of drought, civil war and the continued activities of illegal ivory poachers in sub-Saharan Africa, enormous pressures are being put on herds of African elephants, a noble and magnificent beast which is close to extinction in some places? Will he please consider earmarking far more money for elephant conservation schemes? The people of this country would support that wholeheartedly.

Mr. Lennox-Boyd: We all know what the hon. Gentleman has done to save the elephant and he is to be commended. He must agree that the British Government have done very well. We did exceptionally well in 1992, when there was a further £600,000 specifically for helping elephant populations.

Mr. Heald: Does my hon. Friend agree that the key to protecting endangered species is effective action on bio-diversity to protect their habitats? In that context, what has his Department done to help elephants?

Mr. Lennox-Boyd: We do a lot for bio-diversity conservation generally, including the protection of habitats. At present, there are 78 projects wholly or partly concerned with bio-diversity and those cost some £37 million a year.

Kenya

Mr. Cox: To ask the Secretary of State for Foreign and Commonwealth Affairs what plans he has to visit Kenya to discuss bilateral issues.

Mr. Lennox-Boyd: My right hon. and noble Friend the Minister for Overseas Development will visit east and southern Africa later in the year. Her detailed programme is not yet available.

Mr. Cox: When the Minister's right hon. and noble Friend visits eastern and southern Africa, will she note the fundamental changes in monetary and economic policy that the Kenyan Government are now following, adding to their increased problems with refugees from Somalia? Will the Government be sympathetic to requests for aid, should they be made, and for releasing funds earmarked for Kenya?

Mr. Lennox-Boyd: As the hon. Gentleman knows, the Kenyan Government have had difficulty with the International Monetary Fund, but reached a new agreement in May of this year called the shadow programme, which we and the IMF will monitor. If the shadow programme is successful over a period, the IMF and the British Government will consider their position on new balance of payments support and other such matters.

Sir David Steel: Will the Minister take this opportunity to reinforce the concern that has already been expressed by Her Majesty's Government about the official sabotage of the printing presses of Fotoform Ltd, whose managing director is a British citizen? Will he make it clear that

enforced continued non-publication of various magazines by that press constitutes unwarranted interference with the freedom of the press?

Mr. Lennox-Boyd: We have repeatedly stressed the importance of a free press as one of the cornerstones of a healthy democracy and strongly condemn the police action against Fotoform printers. We are pressing for the court case to be concluded urgently.

European Development Fund

Mr. Wells: To ask the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the effectiveness and economy of administration of the European development fun; and if he will make a statement.

The Secretary of State for Foreign and Commonwealth Affairs (Mr. Douglas Hurd): The European Commission is responsible for administering the European development fund. We are in constant touch with the Commission and with other member states to improve its effectiveness.

Mr. Wells: Is it not true that Britain, under the leadership of my right hon. Friend, takes the lead in insisting on a more efficient and focused European development fund, and the co-ordination of its policies with member states' aid policies?

Mr. Hurd: I hope so. We should certainly like to see in the European development fund greater concentration on countries in real need with a record of good government. Making multilateral programmes more effective is increasingly important, as they make up a steadily increasing part of the total aid programme.

Mr. Meacher: The Prime Minister decided at Edinburgh last December to double the United Kingdom's contribution to the European development fund and the EC aid programme by the year 2000, while freezing the British aid programme for the next two years. In view of that, has the Foreign Office told him that such policies are throwing Britain's bilateral aid programme into turmoil? Is he aware that his own Department has released a statement declaring that the next two-year freeze will reduce Britain's aid programme by £150 million and that, in terms of value for money, after black Wednesday's devaluation, that figure will be nearer to £250 million? Will he confirm that his own Department is preparing contingency plans for major cuts in aid? When will the Foreign Secretary start standing up for the aid budget and stop being such a soft touch?

Mr. Hurd: We are beginning, not ending, this year's public expenditure round and we all know the problems affecting that round. There will be pressures on the aid programme, as on other public expenditure programmes. As I said in answer to the first question, I believe that multilateral contributions, whether to the EC or the United Nations, are a steadily increasing part of the total aid programme. I believe that our bilateral programme is second to none in its quality and I intend to maintain an effective programme.

Population and Development Conference

Mr. Ottaway: To ask the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on preparations for the international conference on population and development to be held in Cairo in 1994.

Mr. Lennox-Boyd: I understand that the United Nations preparations are proceeding well. The Overseas Development Administration will continue to work closely with everyone involved to help ensure the success of this important event.

Mr. Ottaway: I thank my hon. Friend for that positive statement. I congratulate him and the Prime Minister on persuading the G7 summit to agree to encourage the success of the United Nations conference, which reflects the growing concern over the population issue. Does my hon. Friend accept that there is growing concern that what is meant to be a conference on population and development is rapidly turning into a conference on development and a bit of population?

Mr. Lennox-Boyd: I very much agree with my hon. Friend that the conference must be about population, not development generally—it is essential to get that message across. My hon. Friend and the all-party group on population and development are to be congratulated on drawing attention to what is a great problem. There is no purpose in having aid programmes if they do not, in considerable measure, address the problems of population growth for the future of the world in the next century.

Mr. Pike: Does the Minister accept that, as we prepare to go to some of these conferences, some countries find it odd that this country and Europe still pay farmers to

reduce production through set-aside programmes? Should not we try to use that food to help with the problems of population and development in other parts of the world?

Mr. Lennox-Boyd: All those questions can be considered at the conference. The important point is to understand the principles that are at stake.

Russian Federation

Mr. Fabricant: To ask the Secretary of State for Foreign and Commonwealth Affairs what plans he has to meet European colleagues to discuss continuing aid to the Russian Federation.

Mr. Hurd: Aid from the European Community and member states makes up 70 per cent. of all western support to Russia and the rest of the former Soviet Union. I meet my European colleagues regularly, and support for Russia is often discussed.

Mr. Fabricant: Following the success of my right hon. Friends the Foreign Secretary and the Prime Minister at the G7 summit, we are all aware that £3 billion will be given to assist the Russian Federation. Will my right hon. Friend expand on this and state the sort of aid that we give to Russia, especially for expertise on privatisation?

Mr. Hurd: I think that my right hon. Friend the Prime Minister may touch on that in a few minutes. It was certainly an important result of his expedition to Tokyo. Through our British know-how fund and the schemes that were confirmed and extended at Tokyo, it is important to give special assistance to Russian privatisation and to small and medium enterprises in Russia. I think that my right hon. Friend will give details of the extra commitments that were made.

Economic Summit (Tokyo)

The Prime Minister (Mr. John Major): Madam Speaker, with permission, I should like to make a statement on the economic summit in Tokyo and the Group of Seven meeting with President Yeltsin.
I attended the summit with my right hon. Friends the Foreign Secretary and the Chancellor of the Exchequer. During the three days I also had bilateral meetings with our host, Prime Minister Miyazawa, and with the Presidents of the United States and Russia and the Prime Minister of Canada. The summit produced significant achievements. These are set out in the economic and political declarations which I have placed in the Library of the House.
Before the Tokyo summit, the GATT talks had been stalled for several months. The summit acted as a catalyst. The United States, Japan and the European Community negotiated a report on access to each others' markets which has led to a resumption of GATT negotiations in Geneva this morning.
The report offers large benefits to British industry. In six of the eight categories where tariffs are to be abolished entirely, Britain is a net exporter. These include pharmaceuticals and construction equipment. Japan's agreement to abolish all the import duty on whisky will give a welcome boost to sales in a market which is already worth over £170 million a year to Scotland. Many other particularly high tariffs faced by British exporters will be cut by 50 per cent. or more. These include punitive United States tariffs on ceramics, glassware and high quality textiles. In other categories of manufactured goods, there was agreement to cut as many tariffs as possible by a third, or to harmonise them at low levels.
The Uruguay round is far wider in scope than previous multilateral trade negotiations. It still has a long way to go, but the Tokyo meetings have injected much-needed momentum and real progress on substantive issues—action as well as words—and the world-wide prospect of more trade and more jobs, especially for a trading nation like the British. With low interest rates and firm control of costs, British industry is exceptionally well placed to benefit from a successful GATT round.
Each summit country, except Japan, is facing a serious fiscal problem. With the exception of the United Kingdom, the European participants are not expecting economic growth this year. Against this background, the summit identified barriers to growth which have developed in much of the industrialised world.
As at the European Community's Copenhagen Council, I found a new willingness among our partners to address some of the hard lessons that we learnt in the United Kingdom during the recent recession. Three points in particular were generally accepted. The first is that there is a long-term upward structural trend in unemployment in addition to the cyclical effect of the recession. Secondly, on present forecasts, the cost of social provisions is likely to exceed the capacity to meet them in all the main industrial economies and, thirdly, that deregulation and labour market flexibility are vital to get unemployment down.
It was agreed that Europe should implement the firm budgetary and other measures needed to facilitate the rapid reductions in interest rates that are now required in many countries on the continent. In north America, strong

action was being taken to bring down fiscal deficits over the medium term with the objective of securing higher saving and investment. Japan, meanwhile, will implement fiscal and monetary measures to ensure sustained growth led by strong domestic demand. That will help to reduce Japan's large current account surplus.
Each of those measures is intended to help growth around the world. The summit's accent on jobs was reflected in agreement to send high-level representatives to a special meeting that President Clinton is convening in the autumn. That will study the causes of unemployment and pool experience in seeking solutions.
In April, the Group of Seven put together an unprecedented set of measures to help Russia through its deep transformation. At Tokyo, the Heads of Government confirmed that approach and noted that some large financial flows were already being made available, including $1½ billion in a new IMF facility. We set out a programme worth some $3 billion to help privatisation and restructuring. There are now some encouraging signs of a spreading enterprise culture in Russia. The summit leaders told President Yeltsin that they were determined to sustain the huge support that they had given reform in his country.
Of equal importance, we have reinforced our political partnership with Russia. As an innovation this year, our agenda included a joint review with President Yeltsin of international problems. At my suggestion, the meeting concluded with an invitation to the Russian President to join us again next year in Italy.
The political declaration touches on many of the problems we discussed with President Yeltsin, or beforehand among the Seven. We supported a negotiated settlement for Bosnia, but only on the basis that it would be acceptable to the Muslim people and not imposed on them. We highlighted the importance of the nonproliferation treaty, supported the constitutional talks in South Africa and expressed concern about the behaviour of Iraq, Iran and Libya.
The summit paid close attention to problems of the developing world and of the environment. I secured agreement that improved debt reduction terms should be considered for the poorest and most indebted countries. I hope that that will carry implementation of the Trinidad terms further. On the environment, the summit reaffirmed its commitment to sustainable development and implementation of the Rio decisions.
Finally, a word about the summit process itself. Over 19 meetings, the summits have evolved from an informal discussion between Heads of Government into an enormously expensive and, in my view, over-structured international event. I believe that radical change is necessary if we are to get the best out of the summit process. I proposed innovations last year and I made further proposals in Tokyo. These were widely supported. I hope that, as a result, future summits will be more informal, less pre-prepared and will provide even more opportunities for spontaneous discussion between the summit Heads.
Despite the procedural weaknesses I have mentioned, the Tokyo summit produced results of particular benefit to the United Kingdom as an exporting nation and a leading advocate of free trade. It concentrated on problems that are causing deep concern not just in this country, but around the world. It helped to bring leaders who are


addressing those problems in common closer together. It laid the groundwork, I believe, for productive work at future summits.

Mr. John Smith: I thank the Prime Minister for making this report to the House.
We welcome the recognition by the Group of Seven that there is insufficient growth and too much unemployment in their economies. In particular, we welcome President Clinton's proposal for a special employment summit this autumn.
Can the right hon. Gentleman explain why, when similar issues were raised at the summit last year by the then French Government, he was, as was noted in Saturday's issue of The Independent, brusquely dismissive of the idea of unemployment being discussed, apparently saying:
What for, if we can't do anything about it?
Does the right hon. Gentleman now accept the need for closely co-ordinated international action to promote growth and employment, and that such action must be taken at the European level? Would not it be a good lead to others for Britain now to cut interest rates? Would not that also be very much in Britain's interests, given last week's warnings by Midland Montagu, among others, that recovery in our economy will flag unless there is a further cut in base rates? I welcome what the Prime Minister said about the progress that has been made on the GATT. Will he explain, however, why two of the critical issues—agriculture and trade and services—were ignored at the summit? Although valuable progress has been made in the quad talks to which he referred, all the agreements depend on a successful outcome on the difficult fronts. Why was agriculture ignored when the main protagonists in the dispute—France, the United States and Japan—were all around the same table?
Does not the Prime Minister recall that the G7 countries have promised to settle the issue in every summit since Houston four years ago, and that two years ago, at the London summit, the right hon. Gentleman himself pledged to remain personally involved in the process,
ready to intervene if differences can only be resolved at the highest level"?
Why was the subject dodged at Tokyo?
Opposition Members also welcome the continued economic assistance for Russia; but is it not strange that the $4 billion package agreed by the G7 in April has now shrunk to $3 billion? Why has that happened, and what message is meant to be conveyed by such a startling reduction in such a short time?
Was any consideration given to assistance for the Ukraine, especially in the light of its genuine economic difficulties and the vital importance of its accepting the arms reductions agreed under the strategic arms reduction treaties?
Does the Prime Minister appreciate that there will be disappointment—in many parts of the House, I hope—that full agreement on the Trinidad terms of official debt reduction has still to be reached by all the G7 countries, and in particular by Japan? Should not consideration now be given to extending the principle of debt relief from bilateral to multilateral official loans, especially those of the International Monetary Fund and the World bank? Can that be put firmly on the G7 agenda?
We welcome the recognition in the declaration of the danger of nuclear proliferation and the vital importance of the non-proliferation treaty. Would not the process be

assisted, however, if a comprehensive test ban treaty could be agreed? Will the Prime Minister join me in strongly welcoming the United States' decision to extend its own ban on tests by a further year?
Does the Prime Minister understand the depth of feeling, in this country and throughout the world, about the disastrous turn of events in the former Yugoslavia—which, I believe, merited only one sentence in his statement? Does he appreciate the incomprehension at the complete failure of the international community to address its responsibilities in Bosnia? As we speak, the Serbian siege threatens to overwhelm Sarajevo. How does the Prime Minister think the inhabitants of that city feel about the evasive platitudes of the G7 declaration? Have they not heard it all before? Meanwhile, Serb and Croat aggression continues unchecked.
Are we not in a parlous state when the whole United Nations effort—both humanitarian relief and peacekeeping—is stalling because of inadequate resources and support from the international community? Instead of vague threats such as
Stronger measures are not excluded
which the Foreign Secretary got into such a mess trying to explain—should we not hear a commitment to action, such as the use of air strikes, to make the aggressors understand that the international community will no longer tolerate the defiance of United Nations authority and the dismembering of Bosnia?
Why are not sanctions against Serbia being toughened, and why are not sanctions being imposed on Croatia? Why are extra troops and greater resources denied to the United Nations in the field? Why is there no resolve to make safe areas the haven that they should be for the innocent sufferers in this bloody conflict?
Has not the summit generally failed to fulfil its exaggerated promises of success, and, in the case of Bosnia, completely avoided its fundamental responsibilities?

The Prime Minister: The right hon. and learned Gentleman was uncharacteristically negative, but I shall endeavour to deal with the points that he made. I am grateful for the welcome that he gave to parts of the agreement that have been reached. Whatever cross-party support is available is always helpful on these occasions internationally.
The right hon. and learned Gentleman referred to the report in The Independent. As is so often the case with newspaper reports, I am a little baffled by what the right hon. and learned Gentleman was quoting from, or what he might mean by it. [Interruption.] Well, he probably quoted something that was inaccurately reported.
As for the right hon. and learned Gentleman's question regarding co-ordinated action on unemployment at the European level, I refer him to the report that I gave on the Copenhagen summit some time ago, to which I believe he responded.
I agree with the right hon. and learned Gentleman that there is a long way to go on the Uruguay round. I specifically made that point. It was necessary to get the access agreement settled so that we could return to everybody negotiating, yet again, for both services and agriculture, where there are extremely difficult problems to be solved. What is vital is that, as a result of the agreement reached in Tokyo, the multilateral negotiations have started again this morning.
Whatever agreements may be reached by the quad, they are only a part of all the countries which finally have to reach agreement in terms of the Uruguay round. I have made the point on many occasions that each G7 summit since Houston has sought an agreement on the Uruguay round. It was for that reason that on a number of occasions in the last six months I approached other Heads of Government to try to push the negotiations along further, including a meeting that I had with the President of the Commission in the autumn of last year.
I have therefore, as I said I would, remained personally involved in this matter, and I propose to do so for one reason above all others. I believe that there is nothing more important internationally at the moment than a satisfactory outcome to the Uruguay discussions, for such an outcome will increase growth and create jobs in this country and around the world. I believe that that is vital. I know that the right hon. and learned Gentleman shares that view.
On the right hon. and learned Gentleman's questions about Russia, the $4 billion to which he referred that had been spoken of in April was an aim suggested by one member. It was not an agreement. We have agreed on $3 billion. No one is forthcoming with resources beyond that. When I met President Yeltsin at breakfast, and subsequently, he seemed to regard that as a very substantial contribution, and one for which he was extremely grateful. He did not have the reservations expressed by the right hon. and learned Gentleman about it.
As for the Ukraine, we are helping the Ukraine bilaterally. The reason for the inability to help the Ukraine multilaterally is that it has not reached an IMF agreement. If it is able to reach an IMF agreement, the prospect of further multilateral assistance is certainly necessary. The point made about arms reduction in the Ukraine is important. It was a point that we discussed, and it was discussed on previous occasions. It is a problem of immense complexity that we shall need to continue to address.
As for the Trinidad terms, Japan has always had a rooted objection to writing off debt. Japan is prepared to extend debt, but for its own internal accounting reasons it is deeply reluctant to write it off. The United States has often had the same difficulty. However, it has now established the principle of debt relief and will be meeting the Trinidad terms. That is a distinct move forward.
We agreed, as a result of discussions, that we would ask the Paris Club to look afresh at further help for the poorest countries. That will involve the Trinidad terms countries in particular. I expressed the view that I hoped that it would look at going well beyond the Trinidad terms and writing off a large proportion of the total stock of debt, not just the stock of debt that becomes due for repayment during the period of an IMF agreement. That would be a substantial addition to write-off for the poorest countries in the world. We shall continue to push for that in the Paris Club.
The right hon. and learned Gentleman referred to a comprehensive test ban treaty. That does remain a long-term aim. I hope that in due course we shall be able to achieve it.
The right hon. and learned Gentleman raised a series of points on Bosnia, points that he has raised on previous

occasions. I am not sure that there is anything fresh in what he has said today. Although he was quite long on questions, he seemed to me to be a little short on solutions. It may be that he has lost touch with some of the events that are occurring on the ground. In respect of humanitarian aid, he will perhaps have noticed that even this morning my right hon. and noble Friend Lady Chalker announced a further £18·5 million worth of humanitarian aid from the United Kingdom to help people in Bosnia.

Mr. John Watts: Did my right hon. Friend impress on the other European Community Heads of State and, in particular, on the President of the Commission, Mr. Delors, that if they are at all serious about reducing unemployment and improving employment prospects they should immediately abandon the social chapter and all similar policies, which would impose unnecessary costs on industry and commerce?

The Prime Minister: I am extremely sorry to say that Mr. Delors was unwell and was not therefore at the summit. He was represented by Mr. Christophersen, the Vice-President of the Commission, who is aware of the United Kingdom's views on the social chapter. We did not specificallly discuss it, but he is in no doubt whatsoever that we believe that the social chapter would cost jobs, not create them.

Sir David Steel: I thank the Prime Minister for having met an all-party group to discuss the Trinidad terms before he left for the Tokyo summit. How soon does he expect some results from the initiatives that he took at the summit?
Secondly, am I correct in understanding that none of the announced tariff cuts will take effect until the Uruguay round of the GATT talks has been completed, and should we not keep that in perspective?
Thirdly, on Bosnia, will the Prime Minister accept that neither the strong words of the G7 nor the humanitarian package announced this morning will do anything to help the potentially murderous siege of Sarajevo unless the United Nations troops on the ground are authorised and reinforced with resources by their Governments to enable them to break that siege?

The Prime Minister: On the three points that the right hon. Gentleman made, I hope that the Paris Club will begin soon to discuss the question of further debt relief. How rapidly it will reach a conclusion I am afraid I cannot anticipate. The United Kingdom will push for a comprehensive solution as speedily as possible, but we have run into difficulties. People believe that we have been a little ahead of them in seeking debt reduction in Toronto terms three or four years ago, in Trinidad terms a couple of years ago and now. There are distinct difficulties in other countries. It is possible for some countries to move ahead unilaterally, as we ourselves have done from time to time in the past, but that then diminishes the capacity of those countries to seek what the debtor countries most need, which is a comprehensive write-off of debt by the Paris Club and, where appropriate, by the London Club as well in terms of commercial debt.
One of the points that I hope all our partners will recognise is that there is no incentive whatsoever for many of the poorer countries to continue to try to lift themselves out of their present difficulties if every element of their


increased prosperity is then utilised to pay off an increasing level of debt interest on an increasing capital sum. I hope that it will be possible to have a substantial write-off.
On tariff reductions, the right hon. Gentleman is entirely right: nothing, in the famous terms, is agreed until everything is agreed. The hope and expectation is that the deadline will be in the middle of December—

Mr. Dennis Skinner: Again.

The Prime Minister: The hon. Gentleman says, "Again", and he is right to be sceptical about it. We have done it, but we now have movement that we have not seen in the past with the fast track renewal in the United States and the breakthrough on access talks. I hope that we will get it concluded in December of this year.
On the question of Sarajevo, the right hon. Gentleman knows the Government's position. I am not in a position to offer fresh troops.

Mr. John Biffen: The Prime Minister has clearly had a most excellent Tokyo summit, but may I congratulate him in particular on the work that he intends to undertake to make such gatherings much less structured and, hopefully, much less frequent? Is he aware that in certain circumstances travel narrows the mind and that there is nothing more absurd in the current circumstances than a gathering of the world's elite, discussing the nobility of its aims, at a time when right across north America and Europe there is an all-time record gap between the perceptions of Government and governed?

The Prime Minister: I strongly share the views expressed by my right hon. Friend. It may be that one of the reasons for that gap between the public and the politicians is an excess of summit fatigue, where people meet together without a realistic expectation of actually achieving what may have been expected from a summit of that sort.
I am delighted that colleagues have accepted many of the ideas for simplifying the summit process. I must confess that I did not achieve all the ideas that I wanted. I say with some trepidation, with my right hon. Friend the Foreign Secretary sitting beside me, that I had hoped to restrict the summit to Heads of Government only and not Foreign Ministers and Finance Ministers. However, those of our colleagues with coalition Governments felt that they should continue to attend.

Mr. Robert Sheldon: Is the Prime Minister aware that one of the advantages of these summits is revisiting, again and again, the continuing problems that face the world? Will he accept that what is needed now is the necessary pressure on Japan to reduce its balance of payments surplus and the essential requirement to move the GATT forward? The excessive trumpeting of success does not suggest that we have the GATT problem fully in mind.

The Prime Minister: We are well aware of the importance of the GATT round and no one in this House has been in any doubt about that for the past two years. Well over 100 nations are engaged in the Uruguay round talks. That makes it extremely difficult to reach agreement. As I indicated earlier, the talks are much wider and much

more comprehensive than any previous trade talks. They include services and agriculture, and that has not been the case in the past. Those extensions are very welcome.
One point which deserves to be made is that many of the Cairns group of countries—in industrial terms, rather smaller countries—reached their GATT agreements three, four or five years ago and they have held to them. Their frustration at the difficulty of the United States and Europe in sticking to agreements that they reached months ago is entirely justified. I very much hope that we will be able to do that and also reach an agreement.
The point about revisiting problems is entirely right. However, it is not desirable to revisit them on occasions when there seems to be no practical opportunity of doing anything about them unless the revisiting is on the basis that I have proposed for the future—much more informal discussions.

Sir Peter Hordern: Will my right hon. Friend confirm that, while the agreements in Tokyo are to be welcomed, there is no question but that a general reduction in tariffs is to be preferred to a series of bilateral agreements reached between different countries such as the United States and Japan? Does my right hon. Friend agree that the main purpose must be to achieve a reduction and success in the Uruguay round in agriculture? Will he confirm that no single country has the right of veto in such negotiations?

The Prime Minister: I would certainly confirm that. In terms of the European Community, an agriculture agreement is available by qualified majority vote. One hopes that that would not be necessary and I hope that, at the end of the negotiations, the advantages there for every western European country in industrial matters will ensure that no one would seek to block it on the grounds of agriculture. We need an agreement on agriculture. It will be a novelty to have one and it would be a very remarkable breakthrough if it were achieved.
With regard to my right hon. Friend's earlier point, a general agreement is infinitely to be preferred to bilateral agreements. Bilateral agreements are of little help to many of the developing countries.

Mr. Gerald Kaufman: In his bilateral talks with President Clinton, did the Prime Minister discuss the United States ban on British nuclear tests in Nevada? Did he remind President Clinton that a year and a quarter ago this Government told the country that nuclear tests were indispensable to British security? Will the right hon. Gentleman tell the House whether British nuclear tests are still indispensable to British security, and will he give a clear yes or no?

The Prime Minister: In fact, I discussed that with President Clinton a few days before we went to Tokyo and we spent some time discussing it. The ban has been extended for a further year. We will wait and see whether other people outside the United States sphere of influence continue testing, in which case I think that the United States and we would as well. In that year, we are seeing whether we can find alternative ways of managing without the necessity for the tests. Some think that we can do that and we are still examining that. The scientists are as yet uncertain. I hope that it will be possible.

Mr. Patrick Cormack: Although I congratulate my right hon. Friend on a very successful


summit, may I press him again on Bosnia? Does he accept that, since the Washington declaration, events have deteriorated markedly, that no extra protection has been given to those in safe havens, and in Sarajevo in particular, and that that great European city stands on the brink of total collapse in the most atrocious conditions seen anywhere in Europe since the end of the second world war? There were some tough words in the declaration on Bosnia. Is my right hon. Friend prepared to say that they will be followed by action to try to save Sarajevo?

The Prime Minister: The Secretary-General, as my hon. Friend will know, is actually mustering troops at the moment in terms of the resolution, the number of which escapes me for the moment, on safe areas which was passed some time ago. We ourselves have provided troops; we have had troops in Bosnia for some time. We look forward to other people doing so as well so that that resolution can be carried out.

Mr. Frank Field: Given the importance of the level of world trade to British prosperity, may I welcome the small but important movements in the GATT negotiations that the Prime Minister announced this afternoon? May I remind the Prime Minister of the answer that he gave recently to the House, that one of the Government's objectives was to establish full employment? Is he aware that it is a long time since the House has heard that as an objective of Her Majesty's Government? Does the Prime Minister accept that, although many people have very useful ideas on how we could marginally increase the number in employment, nobody but nobody in the western world has any idea how to achieve his objective?
When Britain faced exactly the same situation in the 1930s, the then Prime Minister sounded a note of urgency by initiating a national debate and having that debate reporting directly to him. Will he consider a similar initiative so that when the British delegates go to Camp David they can go armed with new ideas, bringing hope to our constituents, some of whom have waited 10 years or more in the dole queues, rather than acting as mere intellectual bag carriers of other nations?

The Prime Minister: I am grateful to the hon. Gentleman for what he had to say in his opening remarks about GATT. It was, of course, this country that raised at Copenhagen the significant question of employment across Europe and the long-term trend.
What is of increasing concern when one strips away the effect even of the recession is that right the way across Europe—not just in this country but right the way across Europe—from about 1970, under Governments of both parties, and at one stage two parties at once, there has been a general increase in unemployment. Worse than that, there has been a corresponding increase in long-term unemployment that is centred particularly upon low-skilled or unskilled males. That is not a British phenomenon; it is a phenomenon that one can see to a greater or lesser degree across the whole of the industrialised world, with the exception of Japan, where different circumstances apply.
We did raise the issue in Copenhagen. I raised it again in Japan. We will most certainly contribute forcefully both to the White Paper in Europe and President Clinton's

discussions later on this year. Some jobs will certainly be created by supply side reform, some by growth, but there is not an automatic equalisation between growth and jobs, as hon. Members will realise. On any rational expectation, a satisfactory GATT agreement will also create a significant number of jobs. There is a series of events in train that can help to put people back to work. That is certainly our objective.

Sir Teddy Taylor: As the substantial and exciting tariff reductions that my right hon. Friend the Prime Minister fought so hard to achieve can be frustrated if the GATT round breaks down, what on earth can we do if the European Community is unwilling to reduce its agricultural expenditure which is currently beating every previous record, with the mountains of food breaking every previous record? Would it not greatly help the GATT discussions that the Prime Minister has worked so splendidly on if some member state within the EC would propose that either the CAP should be scrapped or that individual nations should be entitled to disengage from it? Would not that help my right hon. Friend the Prime Minister in the fantastically good job that he did at Tokyo?

The Prime Minister: I am grateful to my hon. Friend for his helpful contribution. The Government agree with him on the need for CAP reform, and there has been some reform of the common agricultural policy. No doubt more will be necessary, but we will certainly endeavour to persuade all our European partners not to stand in the way of a comprehensive trade agreement.

Mr. Tam Dalyell: In his opening statement, the Prime Minister referred to discussions on the behaviour of Iraq. What hard evidence did either the Americans or President Clinton give about the involvement of the Iraqi state in the so-called attempted assassination of President Bush in Kuwait? Is it likely, if it was Saddam Hussein's handiwork, that the would-be assassins would run out of petrol and not know where the university of Kuwait was? Will he be very careful before endorsing further military action and the launching of missiles on Baghdad?

The Prime Minister: I will send the hon. Gentleman a copy of the remarks concerning the behaviour of Iraq that were made recently by Ms Albright at the Security Council of the United Nations, which I think he will find of some interest. In the past couple of days, we have also seen obstruction of the United Nations weapons inspectors. I think that is a provocation. It stands in stark contrast to Iraq's obligations under Security Council resolutions and, clearly, that matter will now have to go back to the Security Council.

Sir Peter Tapsell: May I ask my right hon. Friend—who always represents Britain at meetings of Heads of Government with distinction—a similar question to that which I asked him when he returned recently from the European summit in Copenhagen? What is the point of repeated high-flown communiqués drawing attention to the urgent need to reduce unemployment, when its principal creator, the central bank of Germany, is outside democratic control? Has my right hon. Friend, with his usual tact, reminded his German colleagues of the fact that it was not inflation but unemployment that brought down the Weimar Republic and put Adolf Hitler into power?

The Prime Minister: I cannot say that I made that particular point in that fashion at the summit discussions, but we indicated the importance that we attach to unemployment when we were in Copenhagen, bilaterally with other European and other Heads of Government, and again in Japan. I think there is a level of understanding about the concern that people feel about the problem that did not exist even a few months ago. I know that my hon. Friend's remarks will be read carefully in other places.

Mr. Dennis Skinner: Is not there an air of unreality about the fact that the Prime Minister had to go all the way to Tokyo to tell us that they have discovered unemployment in Britain? If he had asked in any region of the British Isles, he would have found out that everyone knows that there is a lot of unemployment in Britain. Instead of swapping advice with other Heads of State about how to fiddle the figures in different countries. and talking about level economic playing fields when there cannot be such a thing in the world, why does not he do something here at home, and save the pits, stop shutting the shipyards, save the engineering base, reintroduce exchange controls and introduce import controls? That is the way to save jobs in Britain.

The Prime Minister: I am sure that someone would have made a similar speech following the invention of the wheel.

Sir Anthony Grant: Did my right hon. Friend make it clear at the summit that there will be no deeper involvement of our limited forces in Bosnia, or any mad adventure there, notwithstanding the blandishments of the armchair television warriors on the other side of the House? Will he suggest to them that, if they want a deeper involvement, they had better go out there and serve themselves?

The Prime Minister: I have said on a number of occasions that we have made a contribution in terms of troops to humanitarian aid. There has been a call by the United Nations for more troops. I think that that call should be met by those countries that have not yet contributed.

Mrs. Margaret Ewing: While I recognise that every Member of the House will welcome the fact that the GATT round of talks seems to be under way again, will' the Prime Minister say whether he believes in his heart of hearts that a conclusion can be reached by mid December?
As to the agreement on Scotch whisky reached by the quadrilateral partners, does the Prime Minister accept that throwaway remarks suggesting that it will be to the benefit of Scotland really mean that it will be to the benefit of the Exchequer? While the agreement may help to retain jobs in the whisky industry in Scotland, it will not create them. The issue underpinning that industry, which is a major exporter, is the need to eradicate the internal excise duty levied by Japan, which disadvantages Scotch whisky and other spirits produced in this country by £4 to £6.

The Prime Minister: As to the hon. Lady's first point, I think that a settlement can be reached. I cannot be certain because many complex matters have yet to be determined. I am in no doubt now that one can be reached, and I am delighted that the talks in Geneva recommenced this morning.
As the hon. Lady said, there are two elements in the difficulties faced by Scotch whisky in the Japanese market. One is the external tariff. When a settlement is reached, it will disappear entirely—100 per cent. of the external tariff will go. The other is the internal taxation level. We have been pursuing with the Japanese—and I did so again with Prime Minister Miyazawa—the high level of taxation on Scotch whisky. We will continue to do that in the hope of having it reduced. There has already been a significant reduction, or there will be, with the removal of the external tariff.
As I said in my statement, £170 million of exports go to Japan. As Scotch whisky will in future be cheaper, it is likely that exports will increase. That will certainly safeguard jobs, and I am not sure why the hon. Lady is so certain that it will not create them as well.

Mr. Andrew Rowe (Mid-Kent): Is my right hon. Friend aware that perhaps the most popular policy being pursued by his Government at the moment is that of deregulation? It would be even more popular if it were more widely known. Can my right hon. Friend assure the House that he was able to persuade his G7 partners that that is a popular and necessary part of a world policy, which will make the lives of small businesses in particular rather more fruitful in future?

The Prime Minister: They seemed persuaded. We shall see whether action follows the gentle response when I made that point in discussions. I believe that there is an understanding that there need to be supply side changes to create employment. One important change, as my hon. Friend said, is deregulation.

Mr. Calum Macdonald: On the question of Bosnia, the Prime Minister has sometimes given the impression that all the expert advice that he receives is that the west should not get involved in using military force to deter territorial aggression, first in Croatia and then in Bosnia. Will the right hon. Gentleman confirm whether that is the uniform advice that he is receiving, or do senior diplomatic and military figures say that we could and should use military force to stop the slaughter in the former Yugoslavia?

The Prime Minister: I have received no advice either from senior diplomats or from military figures that a solution could be imposed by military force.

Mr. Edward Garner: Will my right hon. Friend accept the congratulations of my constituents, who are heavily involved in the textile and agriculture industries, on the results of the Tokyo summit? We are pleased at the 50 per cent. reduction in textile tariffs as against the United States. However, if that agreement cannot be put in place by December, does he understand that there will be a need for further reductions in the 50 per cent. tariff ratio so that we may achieve far better exports of British textile goods to the United States.

The Prime Minister: I agree with my hon. Friend. I hope that we will achieve the settlement by December. In any event, that is not the end of the matter. Although a 50 per cent. reduction in tariffs is certainly welcome, we would have preferred a larger reduction—but that was what was negotiable on that particular occasion. I hope that we will return to that matter and seek an even larger reduction in the tariff, up to its complete elimination.

Mr. Peter Mandelson: Perhaps I may pursue the question put by my hon. Friend the Member for Birkenhead (Mr. Field), in response to which the Prime Minister seemed to be well intentioned and sincere in his desire to reduce unemployment but vague as to what he would do. Will the right hon. Gentleman share with the House a little more what new specific policy and initiatives the Government are currently examining which they may take to any new employment summit in the autumn?

The Prime Minister: As I said earlier, there was a range of matters to deal with unemployment. One is deregulation, which has just been mentioned. Not to impose extra costs on employers, as the social chapter would, is a second illustration of what needs to be done. Other measures include policies that will enable the economy to grow—as we have been seeking to do—and to protect capital investment, as we did in the previous public expenditure round. There are also the international macro points that I mentioned earlier: the United States is tackling its budget deficit, Japan will continue to support domestic demand as necessary, and in continental Europe there will be a move towards a reduction in interest rates. The necessity and attraction of closing the fiscal deficit in this country, as in other countries, is that it will be easier to make further interest rate reductions.

Dr. Ian Twinn: Is my right hon. Friend aware of the positive and warm support he receives from Conservative Members for the achievements of the summit, especially the progress towards freer world trade and the greater advantage that that will have for our manufacturing industry? Will he now renew his efforts among our European partners to ensure that they all share our enthusiasm for free world trade?

The Prime Minister: Yes, I will certainly do that. A number of our European partners are also firm advocates of free trade. There are one or two who are slightly less firm in their advocacy and we shall endeavour to encourage them. We are not the only advocates of free trade in Europe; a number of other nations wholly share our views.

Mr. Bob Cryer: How much of the money that has been allocated to Russia will go towards helping to dismantle its nuclear weapons? Would not it impress the other.G7 countries if, instead of talking about the nuclear non-proliferation treaty in glowing terms, the Prime Minister did something about it by introducing a programme in the United Kingdom to shift our manufacturing base away from producing weapons of war to manufacturing for peace and getting rid of Trident nuclear weapons? On the basis of his argument, our jobs will depend on either the manufacture or maintenance of weapons of mass extermination for the next 20 years. Is that his policy?

The Prime Minister: The hon. Gentleman refers to weapons of mass extermination, when nuclear weapons act as a deterrent to protect the nation. That is their purpose. If the hon. Gentleman is so keen for us not to manufacture them, I hope that he will make that point equally clearly in Barrow and Devonport and that he has previously made it in Rosyth. His point rings with a rather curious air against representations made by many of his hon. Friends during recent months.

Mr. Cryer: What about diversification?

The Prime Minister: On the question of Russia, to which I was just coming, we are already helping the Russians with the transport of nuclear weapons and with technical help on their destruction. That is of importance to Russia, and, as his right hon. and learned Friend the Leader of the Opposition mentioned earlier, it is important to Ukraine, where further progress needs to be made.

Mr. Tim Devlin: As my constituency is not far from that of the hon. Member for Hartlepool (Mr. Mandelson) and as it produces pharmaceuticals, chemicals, engineering products and other products that fall into the eight areas on which, it has been agreed, tariffs will not be imposed in the future, may I warmly congratulate the Prime Minister on negotiating away those tariffs? I hope that he will bring as much pressure to bear as he can to end the GATT round as soon as possible.

The Prime Minister: I am grateful to my hon. Friend. I certainly undertake to do that, and I am grateful for his earlier remarks.

Mr. Cynog Dafis: I noted with interest the Prime Minister's reference to the Rio accord, which is intended to underpin all economic and trade policies henceforth. I wonder whether the Prime Minister is aware that a recent United States district court ruling meant that the north American free trade agreement could not be ratified because it did not include an environmental impact statement. Is not it possible that a similar fate might await the GATT agreement and that that could unravel the whole round? In that case, will the Prime Minister give some detail about the nature of the environmental discussion in Tokyo and the effect on the agreement there?

The Prime Minister: One of the significant points made in the discussion on the environment at Tokyo was that President Clinton pledged himself wholeheartedly to the Rio accords. That was a shift of policy for the United States and one that was very welcome. As the hon. Gentleman may know, much work has been going on following Rio to produce national plans for sustainable development, for dealing with climate change, for biodiversity and for forests by the end of 1993. There have been meetings of the United Nations commission on sustainable development; the most recent was in New York last month. Developed and developing countries are now working together actively to put the Rio commitments into practice. Rio is becoming a reality.

Mr. James Clappison: Does my right hon. Friend agree that many of the issues that figured most prominently at Tokyo, such as cutting deficits, deregulation and improving the flexibility of the labour market, were issues of British concern? Just as at Copenhagen, the agenda reflected Britain's concerns. Does my right hon. Friend further agree that there is growing evidence that Britain's case is prevailing, both in Europe and in the rest of the world?

The Prime Minister: My hon. Friend is entirely right about that point. It was very striking in the Copenhagen discussions just a few weeks ago and it was equally evident in our discussions in Tokyo last week. One of the reasons for that is that we went into the recession earlier than many other countries did. There is nothing like a recession to


concentrate people's minds on the reality of what needs to be done. Many countries, now that they are entering recession, are having to look, just as we have done, at some very hard decisions to help people and to recreate jobs.

Mr. John Spellar: The Prime Minister conceded earlier that Japan was not experiencing high levels of unemployment. While he was in Tokyo, did he take the opportunity to look at what is happening in Japan? Did he notice, for example, that the Japanese are spending $70 billion in public works programmes to expand the economy? Did he notice that Japanese employers are trying to hold on to their workers and are not taking every opportunity to cut the work force? Did he notice that they are not as obsessed with the flexible labour market ideology? In fact, the Japanese Government and Japanese employers cannot understand all the fuss about the social market. Did the Prime Minister notice that, in spite of all that, it is the Japanese who have the substantial balance of payments surplus and that it is we who have the balance of payments deficit? When will he abandon the outdated Thatcherite philosophy and look at what really works in this world?

The Prime Minister: The hon. Gentleman may care to study Japan a little more closely before he entirely advocates that. He might, for example, not be entirely happy if we reduced our public spending share of gross domestic product to the Japanese level. That would make a significant difference and one that would be pretty unwelcome to the hon. Gentleman. If he looked at the social costs in Japan, he might also be just a little less enthusiastic. If he looked at some of the wage levels in parts of Japan, he might be a good deal less enthusiastic. I suggest that the hon. Gentleman spends his holiday in Japan.

Points of Order

Mr. Tam Dalyell: On a point of order, Madam Speaker. This is a genuine point of order on which I have had discussions with my right hon. and learned Friend the shadow Attorney-General and a number of colleagues.
You will recollect and have had it brought to your attention, Madam Speaker, that in 1941 one of your predecessors, Mr. Speaker Clifton Brown, took exception to the various efforts made to raise under the emergency procedure the fall of Singapore before it actually happened. Are we to understand that your advice is that if there is a serious threat of military action whose importance is not challenged and whose urgency is not challenged, but which may not meet the third criterion, which is that it is definite, you cannot hear a Standing Order No. 20 application?
Bluntly, it is appalling that the House of Commons should face the situation where, apparently, there is British endorsement of a United Nations plan to launch missiles on a foreign city, Baghdad, which the House cannot discuss before it has actually happened. Will you, Madam Speaker, reflect over the next 24 hours and come up with a ruling on the conditions in which you will hear an application under Standing Order No. 20 in the case of possible military action?

Madam Speaker: I cannot anticipate what may or may not happen in an emergency. I must look at every application on its merits and I do precisely that. But as the hon. Gentleman knows, there have to be new developments. This is a continuing situation and there must be a new immediate development before I can grant an application. I look at each application to me entirely on its merits and will continue to do so.

Mr. Peter Hain: On a point of order, Madam Speaker. I ask that you give a ruling debarring hon. Members who are Lloyd's names from voting on Report this evening or tomorrow on Third Reading. If hon. Members who are Lloyd's names vote themselves tax privileges which are worth perhaps thousands—or even tens of thousands—of pounds, that is tantamount to them putting their hands on taxpayers' money and putting it straight into their wallets.
Lloyd's names have a direct pecuniary interest and "Erskine May" cites a whole series of precedents in which hon. Members are debarred from voting. I realise that they mostly concern private Bills and that the Finance (No. 2) Bill is a public Bill. Nevertheless, the 14 clauses and two schedules in the Bill that apply exclusively to Lloyd's affect uniquely and personally those 44 Members who are shown on the Register of Members' Interests as having an interest in Lloyd's. Therefore, I feel that they should be debarred from voting, and I ask you to give that ruling.

Mr. Alistair Darling: Further to that point of order, Madam Speaker. My hon. Friend the Member for Neath (Mr. Hain) raised an important distinction between a private Bill and a public Bill. The Finance (No. 2) Bill is a public Bill.
I draw specific attention to amendment No. 21, which you have selected for debate this afternoon. It renders the special reserve funds liable to tax. My submission is that that represents an immediate and personal interest on the part of those hon. Members who are Lloyd's names.
No doubt, Madam Speaker, you will refer me to the ruling that your predecessor made on 14 January 1986 at column 1013 when the issue before the House was whether hon. Members who were Lloyd's names could vote for an amendment that widened the scope of the Finance Bill. Your predecessor quite rightly held that, on a matter extending the scope of the Bill, the House was dealing with a public matter.
In my submission, there is a difference. We are not talking about the scope of a public Bill. We are talking about an amendment, which, if pressed to a vote, would result in tax privileges being available to a number of hon. Members, all of whom are Conservative. It would be useful if you would give a ruling at to what exactly is meant by an "immediate and personal" interest, which is referred to on page 354 of the current edition of "Erskine May".
Finally, Madam Speaker, you will be aware that the matter was raised on 24 March 1981 by my hon. Friend the Member for Blackburn (Mr. Straw) in relation to the Lloyd's Bill. Mr. Speaker advised Members that if there was any doubt on the matter, they should not vote.
It would be helpful if you would let us have a ruling as the matter is of interest not just to Members of the House. Members of the public would like to be assured that the House would not let a situation arise where Members who


had a vested interest in their own benefit were allowed to vote in a way that other members of the public were precluded from doing.

Several hon. Members: rose—

Madam Speaker: Order. I think that I can now deal with those points of order if I may be allowed to do so.

Mr. Geoffrey Dickens: Shame.

Madam Speaker: Yes, it is a shame but we ought to make some progress and I am quite prepared to deal with those points of order.
I am grateful to the hon. Member for Neath (Mr. Hain) for giving me notice that he would raise this matter. The rule against voting on a matter in which a Member has a personal pecuniary interest does not apply on a public Bill so long as other similarly situated persons will benefit in the same way.
The provisions of the Finance (No. 2) Bill are not confined to those members of Lloyd's who are also Members of the House. There is no prohibition on such Members voting on this matter of public policy.

Several hon. Members: rose—

Madam Speaker: Order. I have not finished. Hon. Members should not be so impatient, but should listen to my entire ruling. The House will expect members of Lloyd's affected by the Bill who speak in the debates on the relevant clauses to declare their interest.

Mr. Darling: Further to that point of order, Madam Speaker. I should like to be clear about the matter. Do I understand that the effect of your ruling is that, because there are members of Lloyd's who are not Members of Parliament, Conservative Members of Parliament can vote for the measure, notwithstanding the fact that they gain direct benefit? I understand that a further procedure has to be invoked. However, the House must look at such circumstances because many people regard that as rather unfair.

Several hon. Members: rose—

Madam Speaker: Order. Let me take the matter a stage further because I want it to be clear to the House. The hon. Member for Edinburgh, Central (Mr. Darling) is quite right. The measure affects other individuals outside the House and, for the sake of completeness, I shall leave the House with this thought. If I ruled that no hon. Member could ever vote on a measure that would allow him or her to enjoy benefits available to others, the House would never be able to vote for a reduction in income tax. I hope that that clarifies the point. I have given my ruling and I will accept no further points of order on that matter.

Mr. Jonathan Evans: On a point of order, Madam Speaker.

Madam Speaker: Is it a different one?

Mr. Evans: It is an entirely fresh point of order, Madam Speaker. May I have your guidance on clarification of the position under Standing Order No. 31, which, as you know, deals with the selection of amendments, so as to

assist Back Benchers in future over the submission of amendments at this stage of consideration of a Bill? I am referring specifically to the Finance Bill.
The point is covered on page 502 of "Erskine May", which says that the power is exercised by the Speaker as
a check upon excessive repetition of debates which have already taken place in committee.
I have in mind that, on 10 May, the House, in Committee, spent a full day debating issues that appear to be grouped together under amendment No. 7 and other amendments on the provisional selection list.
I do not question your selection in any way, Madam Speaker, but I should like to know whether there has been any change in the guidelines or in Standing Orders, given that "Erskine May" says that that is a power that Speakers tend to exercise "rigorously".

Madam Speaker: The hon. Gentleman will find that "Erskine May" also says that the Speaker has total discretion over the selection of amendments. Irrespective of whether a matter has been debated earlier, it is at the discretion of the Speaker to decide whether to select such amendments for debate during our consideration of the Finance Bill.

Mr. Dennis Skinner: On a point of order, Madam Speaker. I did not get involved in the points of order raised by my hon. Friends the Members for Edinburgh, Central (Mr. Darling) and for Neath (Mr. Hain) because they dealt adequately with those points, which you then answered. However, in your answer—

Mr. Dickens: Ah, the hon. Gentleman will get involved now.

Mr. Skinner: No, this is straight and above board. In your answer, Madam Speaker, you said that if the rule were applied in the way that we wanted, hon. Members could not vote on a reduction in income tax because we would all benefit, as well as those outside. The clear distinction is that, while all Members of Parliament would benefit from a reduction in income tax from 25 to 20 per cent., or even to 15 per cent., in the Lloyd's case, only 44 Tory Members will benefit.

Madam Speaker: Clause 123 relates to Members of Parliament, but not all Members will benefit from it. That is quite distinct from the taxation point. I have given my ruling on the matter, and we should not now return to it.

Mr. Bob Cryer: On an entirely separate point of order, Madam Speaker. One of the developments that has taken place since I was elected in 1974 is that the House has adopted a much more tightly controlled attitude towards Members' financial interests. In the circumstances, would not it be helpful if you asked either the Select Committee on Members' Interests or the Select Committee on Procedure to look at the position of those who have financial interests and their voting abilities? I am not challenging your ruling because, unfortunately, I do not have the power to do that, but it might seem outside that it is inconsistent with the development of tighter scrutiny in the House.

Madam Speaker: The hon. Gentleman can make such references himself. I am certain that my ruling will be seen to be accurate and logical when it has been printed and reflected on.

Mr. Harry Cohen: On a point of order, Madam Speaker. I have listened carefully to what you have said. You commented that if hon. Members who are also members of Lloyd's speak during the debate. they should declare an interest. Will you reflect and make a ruling before tonight's vote on whether those hon. Members should also declare an interest before they vote?

Madam Speaker: The interests are contained in the Register of Members' Interests. I am advising Members who wish to speak that they must declare an interest when they do so. Hon. Members have never been called upon to declare an interest before they enter the Division Lobby.

Mr. Jimmy Boyce: On a point of order, Madam Speaker. Are there any matters of public policy that are decided in the House that do not affect people outside the House?

Madam Speaker: I think that I require notice of that question.

Mr. Boyce: I am sure that you will get that for tomorrow.

Madam Speaker: Order.

Dr. Norman A. Godman: On a point of order, Madam Speaker. I wish to raise a point that concerns the general principle of declaration of hon. Members' interests. I am not a Lloyd's name. Does an hon. Member have to declare an interest at the onset of his speech, or can he simply allude to it during that speech? The 44 Lloyd's members on the Conservative Benches should, if they catch your eye, declare an interest at the beginning of any intervention that they make.

Madam Speaker: The procedures of the House on this matter are clear and direct. An hon. Member must declare an interest immediately on standing to speak.

Mr. Rod Richards: Further to the point of order raised by my hon. Friend the Member for Brecon and Radnor (Mr. Evans). I seek your guidance, Madam Speaker, on the group of amendments starting with amendment No. 7. Many of the amendments deal with the same point and could be described as repetitive and overlapping. Have the guidelines for those matters changed?

Madam Speaker: No. We never allow repetition or overlapping to occur in the House. I am sure that the hon. Gentleman is not challenging my selection of amendments.

Mr. Dickens: On a point of order, Madam Speaker. I wish to make a point about fair play. I rose following your response to the first point of order, and you would not allow me to continue because you said that you had given an answer. You have since called four Opposition Members to speak on the same subject. I shall not detain the House by pressing you on this, Madam Speaker, but I like to see fair play.

Madam Speaker: The hon. Gentleman often rises to say that I have been particularly fair. If he reflects on Hansard tomorrow, he may see that the points to which he refers which were raised by hon. Members were separate from my ruling.

Mr. John Butterfill: On a point of order, Madam Speaker. I seek advice from you for the future.

Madam Speaker: Is it on the group of amendments starting with No. 7?

Mr. Butterfill: My point relates to petroleum revenue tax, and the concerns of hon. Members on that subject. We know that the matter was debated extensively on Second Reading and that some amendments that were tabled by members of the Committee were ruled out of order for various reasons.
The issue is complex and hon. Members have taken counsel's opinion on the amendments that have been tabled today to ensure that they are in order. Although I appreciate that the matter was explored at some length in Committee, the concept of transitional arrangements was not so explored. Is there a way in which, in the future, hon. Members can frame amendments so that we can be sure that they will be in order and available for consideration?

Madam Speaker: I am sure that the Public Bill Office, which is open all hours, will be extremely helpful.

Ways and Means

SCOTTISH TRUSTS

Resolved,
That provision may be made in relation to trusts having effect under the law of Scotland where the trustees are resident in the United Kingdom.—[Mr. Dorrell.]

Orders of the Day — Finance (No. 2) Bill

Not amended ( in the Committee) and as amended (in the Standing Committee), considered.

New clause 17

SCOTTISH TRUSTS

'.—( 1) Where—
(a) any of the income of a trust having effect under the law of Scotland is income to which a beneficiary of the trust would have an equitable right in possession if that trust had effect under the law of England and Wales, and
(b) the trustees of that trust are resident in the United Kingdom,
the rights of that beneficiary shall be deemed for the purposes of the Income Tax Acts to include such a right to that income notwithstanding that no such right is conferred according to the law of Scotland.

(2) This section shall have effect in relation to the income of any trust for the year 1993–94 or any subsequent year of assessment.'.—[Mr. Dorrell.]

Brought up, and read the First time.

The Financial Secretary to the Treasury (Mr. Stephen Dorrell): I beg to move, That the clause be read a Second time.
The purpose of the new clause is to apply the same income tax treatment to beneficiaries with an interest in possession in the income of a trust governed by Scots law as applies to beneficiaries with an interest in possession in the income of a trust governed by English law. At present, beneficiaries of English and Scottish trusts are treated differently because of the differences in the underlying legal position.
We discussed this point in Committee, and the new clause responds to the undertaking that I gave there to bring the two systems into line. Scottish lawyers who are present may recognise that we have done this by aligning Scottish legal practice with the practice in England. That may not be the best solution in the context of Scottish nationalism, but in the time available it seemed the most practical way of responding to the concerns expressed in Committee.

Mr. Alistair Darling: We welcome the new clause, which we pressed for in Committee. I am glad that, in a comparatively short time, the Government have met our objections. There remain one or two matters that might be dealt with in the Finance Bill to be introduced at the end of this year. I understand that one or two parts of the new clause might be better phrased—according to some of my colleagues who regularly practise in Scotland.
First, it is suggested that the phrase,
having effect under the law of Scotland
might be better expressed as
a trust, the proper law of which is the law of Scotland".
Such matters of definition are important. Without the change, the measure would also affect an English trust that happened to have land in Scotland.
As the House is anxious to make progress on other matters I will write to the Minister with my other

suggestions. Meanwhile, we welcome the new clause, without which Scottish beneficiaries of a trust would have been treated less favourably than English ones.

Mr. A. J. Beith: The Minister said that there are reasons why this form of new clause might not be so welcome as its purpose. When the issue was first raised in Committee, the effect of the Bill as it then stood being to treat dividends received through trusts in Scotland differently from those in England, the Minister was at first unpersuaded. He said that as the payment received in the Scottish case is not a dividend it would be wrong to treat it as though it were. He then listened to our arguments and was eventually persuaded that something had to be done.
Meanwhile, my hon. Friend the Member for Orkney and Shetland (Mr. Wallace) wrote to the Lord Advocate pointing out that in his view a breach of article 4 of the treaty of union might be involved because that treaty provides that
all rights, privileges and advantages which do or may belong to a subject of either kingdom should be communicated to the subjects of the other".
The combined considerations of the Lord Advocate and the Minister resulted in a Government willingness to table a new clause to sort out the matter.
The Minister must not be surprised to learn that Members who have a concern for Scots law are unhappy that a form of words should have been chosen which treats the matter as an extension of English law instead of changing the Scottish legal basis. The new clause uses the words:
notwithstanding that no such right is conferred according to the law of Scotland".
My hon. Friend the Member for Orkney and Shetland tabled an amendment—probably in order, but not chosen—which dealt with the matter via the law of Scotland. Although the Minister seemed to hint that considerations of time had driven him to this desperate expedient, I cannot believe that any technical failing in my hon. Friend's amendment could not have been improved by the efforts of the Lord Advocate's Department, assisted by the Treasury. That could have produced an amendment framed within Scots law.
Treasury Ministers may not be aware of the strong feeling in Scotland that a sort of legal imperialism prevails under which the Scots legal framework, the Scots statute book and Scots common law are all gradually eroded by United Kingdom legislation being tacked on to Scottish law. Law Bills relating to England and Wales often have clauses relating to Scotland added to them, with the result that the law of Scotland is not contained in a distinctive statute book or in Scots common law.
The Minister was thus right to anticipate that there would be some criticism on this score, and right to expect some lamentation over the fact that the practice of bolting bits of English law on to Scots law continues. It was not really necessary to go about the matter in this way.

Mr. Dorrell: My original remarks were not intended to cast a slur on the Scottish National party—I can cast slights in its direction on other occasions, but I was not trying to do so this time. I merely recognised that the drafting of the new clause involves an infelicity from the point of view of Scots law. I do not accept that it could have been easily reconciled, as the right hon. Member for Berwick-upon-Tweed (Mr. Beith) suggested. He said that


we should have spoken to the Lord Advocate. I can assure him that the Treasury has access to his advice. We did not, in the time available, find a better way of achieving the objective.

Dr. Norman A. Godman: Is the Minister perfectly relaxed about the compatibility of this measure with European Community law? The European Court of Justice is a court superior to both English and Scottish legal systems.

Mr. Dorrell: I am satisfied that the measure does not cause a problem with the ECJ.
We have sought to respond to the practical concern expressed in Committee—

Mr. Alex Salmond: Will the Minister answer the point about a possible breach of the treaty of union being involved? Has he consulted the Lord Advocate on that aspect? Has the latter yet replied to the leader of the Liberal party in Scotland, the hon. Member for Orkney and Shetland (Mr. Wallace), on that point? The Minister seems to be treating the matter very lightly indeed.

Mr. Dorrell: Not at all. I recognise that this is a matter of some concern in the Scottish legal fraternity and among those who follow Scottish legal affairs. In the limited time available between the Committee and Report stages, it seemed to the Government more important to respond to the practical concern expressed in Committee than to perfect the drafting in such a way as to meet all concerns. I commend the new clause to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New clause 1

COMMENCEMENT OF SECTION 174

'Section 174 of this Act shall not come into force until such time as the Board have by regulations provided that no payments shall be made from a special reserve fund except as provided for under Schedule 20 to this Act.'.—[Mr. Darling.]

Brought up, and read the First time.

Mr. Darling: I beg to move, That the clause be read a Second time.

Madam Deputy Speaker (Dame Janet Fookes): With this it will be convenient to discuss the following: new clause 2—Payment under section 174—
'No payment shall be made from a special reserve fund established under section 174 of this Act except for the purposes expressly provided for in Schedule 20 to this Act.'.
Amendment No. 29, in clause 183, page 142, line 26, leave out from the beginning to end of line 28 and insert—
'(3) The provisions of this Chapter shall come into force on such date as a Minister of the Crown may by order made by statutory instrument appoint; and different days may be so appointed for different provisions or for different purposes.
(4) No order shall be made under this section unless a draft thereof has been laid before and approved by the Commons House of Parliament.'.
Amendment No. 6, in schedule 20, page 291 line 42, at end insert—
'(3) The arrangements must be such as to secure that, except as required or permitted (whether expressly or by

necessary implication) by this Part or Part II of this Schedule, no payments shall be made into or out of the member's special reserve fund.'.
Amendment No. 21, in schedule 20, page 294, leave out lines 27 to 29.

Mr. Darling: We come now to a debate on Lloyd's and the special reserve fund, the subject of an extensive discussion in Committee. We touched on some of the issues during points of order to Madam Speaker, mentioning the difficulties in which some Conservative Members might find themselves because they are Lloyd's names. Looking around, it is clear to me that many of them have absented themselves from the debate because of the difficulties, but I am sure that when the bell sounds they will come back to vote.
This group of clauses and schedule 20 create a special reserve fund to enable Lloyd's names to put money aside to meet insurance losses. We are not against the principle of making provision by means of such reserves—they are a thoroughly good thing—but our objection throughout has been that we should not allow Lloyd's names to benefit from a device that will enable them to shelter large sums from tax.
One of our principal objections was that under the Bill as drafted it would be possible for a Lloyd's name to put aside sums into the special reserve fund, to shelter them tax free, to see them accumulate and then to withdraw them at will to gain maximum tax advantage. In Committee, we pressed a series of amendments to prevent that happening. To our great surprise, the Government tabled an amendment last week in which they effectively climbed down from the position that they had adopted in Committee, and accepted that the Opposition amendments had a substantial point. The Government's amendment and our new clauses 1 and 2 seek to do the same thing: they would stop the special reserve funds from being used as a tax shelter by Lloyd's names.
I welcome Government amendment No. 6, because it will prevent Lloyd's names from using the special reserve fund for anything other than meeting insurance losses. I am sure that that was the intention of the legislation and that will be its effect. I am grateful to the Financial Secretary for reconsidering the matter. He has certainly departed from the suggestion made in Committee by some of his hon. Friends that the Opposition were raising a matter that had no basis. The Government now admit that it has a substantial basis, and I am sure that they agree that it would be wrong to allow Lloyd's names to use the special reserve fund as a tax shelter. For that reason, we welcome the Government amendment.

Mr. Dorrell: I am grateful to the hon. Gentleman for the welcome he has given to the amendment. I hope that he will accept that it is hardly a climbdown for the Government to table an amendment that has the effect of ensuring that the result sought by both sides of the Committee is delivered by the legislation. Our policy objective has been unchanged throughout consideration of the Bill.

Mr. Darling: I understand that the Financial Secretary must preserve his position. If tackled by his hon. Friends, ministerial colleagues or the Prime Minister, he can point to this passage in Hansard and say that he has put on record the fact that the Government were not climbing


down. If that is not the case, why did so many of his hon. Friends accuse us of scaremongering and raising falsely-based fears?
I am sure that the Minister will accept that, had we not pressed the matter and drawn attention to the fact that a tax shelter would be created, no amendment would have been tabled and Lloyd's names would have been able to use the special reserve fund as a tax shelter. It is important to recognise that the Government have now accepted our position, and that the possibility of using the special reserve fund as a tax shelter has been virtually shut off.

Mr. Dorrell: I do not accept that in the absence of this amendment it would have been possible to use the special reserve fund as a tax shelter. I made it clear in Committee that the safeguards against that eventuality were contained in the deed establishing the trust fund. I said to the Committee:
We are debating now into which piece of paper the principle should be written."—[Official Report, Standing Committee A, 17 June 1993; c. 495.]
In response to the views expressed in Committee, we have written it into both pieces of paper.

Mr. Darling: The Minister is being tenacious. I remember that he said that it did not matter in which piece of paper it was contained. Our preference is to have that tax loophole shut off by this particular piece of paper because this is the statute and the law. We do not want to leave it to the discretion of those who draft the trust fund documents. Nevertheless, we give the Government amendment a fulsome welcome.
Amendment No. 21 deserves attention. We will seek a Division on it at an appropriate time, although that may be some hours, if not days, away. Amendment No. 21 would have the effect of rendering the special reserve fund liable for tax on an annual basis. At the moment, paragraph 9, schedule 20 provides:
Profits or losses arising from assets forming part of a special reserve fund shall be excluded for the purposes of income tax … and for the purposes of capital gains tax".
This matter was discussed briefly in Committee because the main part of the debate was taken up by our principal objection. We were not entirely convinced by the Minister's argument.
It is important that we should accept that, while Lloyd's names should not be discriminated against under the tax system, neither should they be unduly favoured in a way that most members of the public would find intolerable.
I think it is important to put on record the importance of Lloyd's. That point is usually raised by Conservative Members, although not many are here today. Lloyd's is crucial to the United Kingdom, not only because of its reputation—which remains formidable, despite its recent well-publicised difficulties—but for its contributions to the country's earnings. Although Lloyd's has recorded record losses in recent years, the fact that it has significant potential for earnings in the future is important.
Subject to its unique structure, Lloyd's should, in principle and in general, be treated in the same way as any other taxpayer. It should be encouraged but not favoured, and should stand on its own feet. There should be no question of the Government being allowed or encouraged to bail out names who are in financial difficulties. Reports of certain names—particularly those who are Members of

the House—being in severe financial difficulties and in danger of eventual bankruptcy are somewhat exaggerated. I notice that the hon. Member for Lancaster (Dame E. Kellett-Bowman) agrees.
No matter the difficulties faced by those hon. Members, even if in extremis, I am sure that the good and the great who bankroll the Tory party will step in and ensure that they are not disbarred from being Members of the House.
As to names who are not Members of the House, when they went into Lloyd's they were, by any standard, sufficiently well off to take advice; they knew, or should have known, the risks that they were taking. They were well placed to take the advice which most people would take before joining and becoming names.
As I have said, I do not believe that Lloyd's names should be given preferential treatment or more favourable treatment and opportunity than those who take risks in other industries. As I understand it, it is not possible for people in similar positions to make a general provision against future losses. Lloyd's names are being treated in a slightly different way from people in other industries. For example, it is not possible for someone running a small business to accumulate money, tax free, against future losses—I am sure that many wish that they could. We should look long and hard before we give a particular privilege to Lloyd's when there is no justification for doing so.
Amendment No. 21 would subject the funds in the special reserve fund to taxation, which is entirely reasonable. No doubt the Minister will argue that the money can only be used, for the most part, to meet insurance losses. We agree with that. However, on cessation of business, when a Lloyd's name ceases to underwrite and winds up his or her special trust fund, there is a pay-out. I am concerned that, although there is a ceiling of 50 per cent. of profits on the fund, the money could accumulate, tax free—over the years the sum could be quite substantial—and the Lloyd's name could then choose when to cease underwriting to achieve the maximum tax advantage. That is why we raised the matter in Committee and, now, on Report.
The Minister will no doubt talk about the importance of Lloyd's names being able to make provisions against future losses. He will also make the point, with some force, that many of the difficulties in which Lloyd's names currently find themselves would not have arisen had they made provisions against future losses. All of that is true up to a point. As I said in Committee, we are not against special reserve funds; indeed, as the Minister reminded me in Committee, it was a Labour Chancellor, Sir Stafford Cripps, as he then was, who made that provision.
Currently, the maximum contribution limit is £7,000. We are proposing a much higher ceiling and it is therefore important to look again at the taxation provisions. That is why we attach so much importance to stopping the special reserve fund from being used as a tax shelter. I believe that to complete the process the assets in the fund should be subject to income tax or capital gains tax, as the case may be, to prevent accumulation.
Lest anybody feels that we are being unfair to Lloyd's, or discriminating against it, the House should note that the management of Lloyd's has taken substantial steps to put the organisation on a proper footing.
It is all but publicly admitted that self-regulation has failed and it can be strongly argued that the Lloyd's Act 1982 needs to be repealed and replaced. We know why that


will not happen. Notwithstanding Madam Speaker's ruling a short time ago, the whole question of the conflict of interest of some hon. Members, as Lloyd's names, would arise were the 1982 Act revisited.
5 pm
It highlights the fact that many Tory Members cannot consider the City, in particular Lloyd's, objectively because the wealth of so many of them is tied up in it. That is intolerable and should not be allowed to happen. Lloyd's must be considered in the same way as other companies. Its future should not be influenced by the fact that so many Tory Members have a vested personal interest in it. The fact that the Government have a small majority in the House means that their judgment is impaired because so many Tory Members—not just Back Benchers but at least four members of the Cabinet—are Lloyd's names. We should all pause to consider the fact that the Government would be prevented from looking at the Lloyd's Act again because so many Tory Members cannot make an impartial judgment on the matter.
Lloyd's management anticipates that profits will return by the 1995 year of account. Together with the measures that it is taking to deal with the pre-1985 losses, that shows that Lloyd's can be put back on a proper footing. Those steps and the taxation measures that we are asked to approve tonight lead us to suppose that, even with the taxation that we propose, Lloyd's names will be treated fairly and need have nothing to complain about.
The importance of Lloyd's and the fact that its management is trying to put the business on a proper footing must be emphasised. We do not want to discriminate against Lloyd's but to ensure that it will be treated in the same way as other taxpayers, whether corporate or individual.
The United Kingdom insurance industry must be able to make provision for losses. That is one of its problems in competing against other EC countries. The fiscal regime, particularly in France and Germany, allows companies to make provision against future claims. In this country, it is impossible to do that on the same scale. Although the Government are now consulting on the matter, they have yet to decide what to do. However, it is important that we accept the provision against future claims.
We must remember that Lloyd's is not a corporation or normal insurance company. The difference is that individual taxation is at stake. I am in favour of allowing provision against future losses but we must be careful when dealing with individual taxation to ensure that, as far as possible, we treat individual names in the same way as other taxpayers engaged in investing their money. It is important not to discriminate against others who try to invest their money in industry, for example.

Mr. Dorrell: I agree with the hon. Gentleman but seek further precise clarification. If we were to introduce reserving for catastrophe insurance for the corporate insurance industry, does he think that that would validate similar reserving arrangements in Lloyd's?

Mr. Darling: As I was about to say, a distinction must be made. In general, we would support the principle of reserving for corporations but in Lloyd's there is a difficulty. By the time the Government introduce those measures there may be more corporate members of Lloyd's, in which case their taxation will be akin to that of other insurance companies. The difficulty with Lloyd's is

that in future there will be two classes of names: first, incorporated capital, with which I have dealt, and, secondly, individual names who will be taxed broadly like individual taxpayers. Naturally, special provisions are made for Lloyd's. That is where the difficulty arises.
As I said in Committee, I am prepared to allow individual names to make provisions against further losses provided, first, that they cannot use the device to shelter earnings against tax—that matter has already been dealt with—and, secondly, that they cannot accumulate money tax free within the special reserve fund and therefore secure an advantage that is not available to other individual taxpayers. That is what amendment No. 21 strikes at.

Mr. Beith: In Committee we seemed to agree on the principle that any relief allowed to Lloyd's names should be on a basis comparable to that available in the rest of the insurance industry. The hon. Gentleman has argued that that comparability will not apply under the Bill and that, if it did, he would still not be in favour of names having tax relief on provisioning. I do not understand that.

Mr. Darling: The right hon. Gentleman is unnecessarily confused. There is a distinction between the taxation of corporations, to use a general term, and the taxation of individual taxpayers. Both sides of the Committee broadly welcomed the principle of reserving and we hope that the Government will make proposals for the United Kingdom insurance industry. The difficulty in Lloyd's is that, at present, all its names are individual taxpayers. I suspect that in future an increasing number of its names will be corporate taxpayers. But, so long as they are individual taxpayers, we should accept the principle of reserving, which we do by allowing the creation of a special reserve fund. I am simply concerned that it should not confer an additional benefit over and above what is necessary to encourage reserving. That is why we wanted to close the tax loophole. The right hon. Member for Berwick-upon-Tweed (Mr. Beith) was against that.
We also want to prevent the accumulation of large sums of capital tax free, which is a concession that is not available to others engaged in industrial enterprise. So long as individual taxpayers are Lloyd's names, there will always be a problem. I suspect that, given the sums at risk, incorporated capital will make up most of Lloyd's base in the future. We must wait and see what happens.
We must not allow individual Lloyd's names to be given tax benefits that are not available to others engaged in a similar enterprise, other than insurance. I trust that that makes the matter clear.

Mr. Beith: May I pursue the point a little further? The same difference would apply within the corporate sector. If concessions of the kind that the hon. Gentleman and I support are made to the corporate sector, it will make a difference to corporations that put capital into insurance and those that do not. The same will apply to individuals. What they have in common is the peculiar nature of insurance risk and markets. Surely that is an argument in favour of comparable treatment.

Mr. Darling: The right hon. Gentleman carries his argument a little far. Clearly, depending on the business that a company carries out, certain tax provisions are


available to one group of companies and not to another. Were we discussing petroleum revenue taxation, which we are not—

Mr. Salmond: Unfortunately.

Mr. Darling: I agree with the hon. Member for Banff and Buchan (Mr. Salmond). However, oil companies are taxed differently from companies that make rivets, for example. We must accept that insurance companies are taxed on a different basis from oil and other companies.
A clear distinction can be drawn between the taxation of corporations and the taxation of individuals. I do not wish to labour the point, but I am sure that the right hon. Member for Berwick-upon-Tweed accepts the distinction. I assume that, being a Liberal Democrat, he favours the principle of fairness between individual taxpayers. The House must think long and hard before giving individual taxpayers who are Lloyd's names benefits that are not available to other individual taxpayers, while accepting that insurance differs from certain other enterprises.
I am worried that, if the special trust funds are not taxed, Lloyd's names will be able to accumulate large sums. That will not be necessary to meet insurance losses because the sums would be paid out on cessation.
Some substantial tax benefit may arise, but that device cannot be used by other taxpayers. I do not want to labour the point, but we should think long and hard before giving such concessions. That was precisely the thrust of my argument in Committee. I am sorry that the Liberal party did not accept the Labour party's argument because the Tories have accepted it. I am sure that the right hon. Member for Berwick-upon-Tweed will reflect that he might have got it wrong. If it is good enough for me, the Financial Secretary and the Labour party, it should be good enough for the Liberal party—perhaps the fact that it is not tells us something about the Liberal party.
There was an exchange on the subject in Committee. I did not entirely follow what the Financial Secretary said on a similar amendment. He seemed to set some store on the fact that only 50 per cent. of the profits could be put into the special reserve fund—I accept that. However, I am concerned that if up to 50 per cent. of substantial profits were placed in the fund, which remained untouched for a period of years, after 20 years underwriting, a substantial sum might have accumulated. I fully accept that that is secondary to the main issue which I raised in Committee and which has now been addressed. But we cannot leave the matter there because it is important.

Mr. Dorrell: The argument that I advanced in response to the debate in Committee was the same argument that I shall make in a few moments. I shall be interested to hear the hon. Gentleman's response. The key factor is not that there is limitation of 50 per cent. on profit earned on insurance in any one year. As I said in Committee, the key limitation is the separate limit of 50 per cent. of premium income—the amount up to which the reserve can be built to protect the interests, not primarily of the Lloyd's names but of the policyholders. That is a key test of the liquidity of an insurance business run by a Lloyd's name.

Mr. Darling: I accept that there are two tests, but that does not seem to detract from the argument that the funds should be subject to tax—I said that the Minister set some

store on precisely that. The debate between us is whether those funds should be taxed. I believe that they should. That does not lessen the importance of the argument that we advanced in Committee about plugging the loophole. I hope that the Government will be vigilant and alert to the possibility of a Lloyd's name or another party finding a way to circumvent new clauses 1 and 2, or Government amendment No. 6. I hope that the Government will plug any future loopholes that come to light as a result of the operation of the special reserve funds.
As I said, the Opposition want to see Lloyd's thrive and prosper. We want it to put its problems behind it, but we want to ensure that Lloyd's names are taxed on a fair basis. We do not believe that is happening at present, and it is for that reason that I want to press amendment No. 21 to a vote.

Mr. Peter Hain: I do not wish to—and could not—reopen the ruling that Madam Speaker made earlier this afternoon, but I appeal to those hon. Members who are Lloyd's names not to vote on the new clause—a vote which will probably be taken tomorrow evening. I urge them to follow the precedent set on 24 March 1981 when we were discussing the Bill relating to Lloyd's when—I think—53 names abstained. Although the Government's majority was much greater then and hon. Members could afford to abstain in those numbers, I do not think that they can be excused for failing to do so tomorrow.
Like my hon. Friend the Member for Edinburgh, Central (Mr. Darling), I accept that there is a strong case for tax reform of the Lloyd's insurance market. The establishment of a new reserve fund would put Lloyd's on a level playing field with some of our strongest competitors in France, Switzerland and, above all, Germany—Munich Re is Lloyd's biggest competitor. It would also encourage the prudent management of outstanding liabilities.
The Bill is a recipe for tax avoidance. Any income arising from assets in the reserve fund is exempt from income tax while it remains there. Amendment No. 21 seeks to address that issue, but any capital gains arising from the disposal of assets held in the fund are exempt from capital gains tax. The amount paid into the fund will be treated as a fully deductible businesss expense although, admittedly, withdrawals will be taxed as profits.
It is said that, as a sort of balance against those provisions, there is a new basis of tax assessment which treats capital appreciation on invested premiums as income rather than capital gains. That is said to be a disadvantage to Lloyd's names which just about balances the advantages that they receive from the tax privileges they gain from the new reserve fund. I asked the tax department at Lloyd's to justify the Chancellor's assurance that those two changes, running parallel with each other, were, as he said, broadly tax neutral. The department officials were able only to assert that that was the case and were unable to provide figures or costings to prove it. That makes me suspicious that the overall package is a nice little earner for Lloyd's names.
It is also important to ask why the changes are being made now. It is partly because of the huge losses in the year of accounts over the past three years—1988, 1989 and 1990. But the crisis is not simply about the problems of hurricane Hugo but about City fraud. The crisis is not just about asbestosis problems, but the yuppyitis which


produced a "money-for-nothing" era in the City—with my apologies to Dire Straits. It seems that the chickens from that era have come home to roost and the Government are seeking to clear up the mess.
We have had a sad, sorry and sordid tale of working names indulging in insider dealing by dumping loss-making activity and underwriting on external names while maintaining a profitable business for themselves. As a result, many ordinary names became victims of malpractice and corruption. Some victims are numbered among the 44 Conservative Members of Parliament who are Lloyd's names. I am not sure whether the number includes the Attorney-General, the three Cabinet Ministers who are Lloyd's names or the Tory party chairman—all of whom are named in my early-day motion 2299. That is why there is pressure on the Government to bail out Lloyd's. It is tantamount to an abuse of Parliament that a certain restricted and privileged group of Members of Parliament are being bailed out in that manner.

Mr. Beith: Will the hon. Gentleman clarify for the record whether he would regard as an abuse of Parliament the passing by the House of the new clause arid the amendment about which the hon. Member for Edinburgh, Central (Mr. Darling) spoke or the inclusion of any part of that new clause, amended or not, in the Bill?

Mr. Hain: The amendment tabled by my hon. Friend the Member for Edinburgh, Central improves the Bill and I hope that it is accepted. But my basic argument about the abuse of Parliament is that hon. Members who are names should not be able to vote themselves tax privileges which they will receive from the changes. I am not denying that there is a case for modernising the tax regime.
It seems that, although it is said that the tax changes are not fully retrospective, they go back to the 1992 year of account for reserving and also to the 1992–93 year of account for tax assessments. There is a sense in which the new regime will enable those hard-pressed names at least to reassure those who are making claims on their resources that they will have better years to come. I wish that the same fairness and equality was applied to the bankrupt individuals and small businesses who are going to the wall in the current recession—indeed, they have been doing so in accelerating numbers during the past few years. Why should they be treated differently and on a less privileged basis than Conservative Members of Parliament who are Lloyd's names?

Mr. Clive Betts: Would my hon. Friend like to comment on the double standards in this area? The House lays down rules by which local councillors have to declare their interests. A councillor with an interest of any kind, not merely a financial one, not only has to declare it but is prohibited from speaking or voting when the subject of his interest is being discussed at a council meeting. Should not the House follow its own rules?

Mr. Hain: My hon. Friend makes his point well.
My amendment No. 29 would require an annual vote to allow Parliament to keep a check on Lloyd's, which is otherwise a law unto itself as it is not subject to any statutory regulation. It is in a unique position and an

annual vote on the application of the tax regime would allow us to monitor the progress of Lloyd's as it modernises its structure.
Lloyd's should be subject to statutory regulation, and if it were, many Opposition Members would be more willing to grant the new tax regime proposed, even in a modified way, by the Government. Although the recent reforms by Peter Middleton and David Rowland to restructure and modernise Lloyd's, to separate the market from regulation and to introduce corporate capital were welcome, Lloyd's remains an anachronism and it needs to be modernised and updated.
In the past two decades Lloyd's has been hit by one scandal after another and each has been followed by an internal inquiry. There was an inquiry by Cromer in 1970 and that was followed by inquiries by Fisher in 1980, by Neill in 1987 and by Sir David Walker last year. Although those inquiries led to reforms that were welcomed at the time, further scandals emerged. The latest reforms are welcome, but why should they provide any more of a guarantee than the others? Those reforms did not provide any guarantee whatever as there were further scandals in their wake.

Mr. Jim Cunningham: In view of recent events, the Government's proposals, and the question mark over how the company has been managed in the past two or three years, does my hon. Friend agree that there should be a public inquiry? After all, the Government are to give to Lloyd's benefits that they will not give to other insurance companies.

Mr. Hain: The case for a public inquiry was strong over a year ago when news of the crisis broke. My hon. Friend makes his point well.
It is fundamentally wrong to give tax privileges to Lloyd's names without the quid pro quo of statutory regulation. If we modernise Lloyd's tax regime and encourage the company to move into the 21st century—I almost said the 20th century—we should require from all the markets a willingness to accept the regulation that only statute can bring. If there were such regulation many people outside and probably many Lloyd's names would have much more confidence in the company's future.

Mr. Beith: When the hon. Member for Neath (Mr. Hain) speaks about this matter I often think of the hon. Member for Brent, East (Mr. Livingstone) and his assertion in Committee two years ago when we first debated the matter at length, that the attitude that Lloyd's was a place in which the seriously rich dabble was not at all to be found in the Labour party. He may have had cause to modify that opinion.
The case for making any kind of special provision for Lloyd's names is certainly not that some people who were very rich are no longer rich, or at least will not be when their accounts are finally cleared. It is certainly not that the Government should respond with tax concessions to the appalling happenings in some of Lloyd's syndicates. Such arguments provide no basis whatever for tax concessions. They do not weigh in this case and they have not persuaded Opposition Members that there is a case for some measures. I intervened in the speech by the hon. Member for Edinburgh, Central (Mr. Darling), but it is still not clear whether he is in favour of any measures.
The case for some provision is so that this country may have a continuing involvement in the insurance market to


the extent to which Lloyd's has been involved, and so that we may continue to have the earnings that that produces. No other argument would weigh with me because Lloyd's names were aware of the risks. Their money was used not only as a guarantee to Lloyd's but to earn money in other ways in the meantime. They ought to have foreseen what has happened to them, although the catastrophes were not really foreseen by anybody. However, when taking on an insurance risk one must assume the worst case.
Those names might have been justified in supposing that their affairs would be handled properly and honestly and without insider dealing. However, the fact that that did not happen is not the Government's fault because things went wrong within Lloyd's. The case for making a provision on which there seems to be some consensus within the parties is to ensure future earnings from insurance of the kind that Lloyd's can provide. The principle that seemed to weigh with a number of us was that any provision should be appropriate in the context of the insurance industry and should be available to other participants in that industry. There cannot be strict comparability between all forms of risk because there is not a quite comparable form of risk. Capital may not be put up for insurance if we cannot set out a sensible basis.
The Government are legislating to deal with the Lloyd's problem but are still consulting and forming their opinion about what should be done for the rest of the insurance industry. That is less than satisfactory. The hon. Member for Edinburgh, Central expressed the surprising view that a strictly comparable treatment of Lloyd's names and of people who were corporately involved in insurance, whether at Lloyd's or anywhere else, would not meet with his approval. He rested his case on the difference between individual and corporate tax affairs. There are indeed differences, but the hon. Gentleman did not suggest that any of them should be systematically offset to an appropriate figure in some arrangement that combined the two. He seemed to rest a great deal of weight on a structure that would not bear it. I suspect that the hon. Gentleman's real reason is to have something to vote on so that the Lloyd's names can be flushed out.
I had some sympathy with the hon. Member for Neath who said that it was unsatisfactory, certainly in the view of the outside world and certainly by comparison with local government, for people with a direct personal interest to be able to vote on their own affairs in a way that can make a large difference to them. I agree with the hon. Gentleman that those people should abstain and throw themselves upon the mercy of the House, in which case they would depend on Labour votes. Up to a point that might be thought resonable because Labour's Front-Bench spokesmen have said that they are in favour of the broad, main elements of the package in the Bill, especially as all doubt has now been removed by the Government's amendment, which ties up the loose ends from Committee, on the first of the two points about which the Opposition were concerned.
Labour Front-Bench spokesmen are taking a perfectly reasonable attitude in seeking to get matters right. What worries some of the Lloyd's names is the belief that the hon. Member for Neath and a few other hon. Members are not in favour of having any such measures in the Bill. The reason for a vote on the amendment at some time is not

because one can logically defend it but because there has to be some sort of vote to show up those Lloyd's names who will vote in their own interests. I shall watch the vote with the same interest as Labour Members, but I am still not satisfied that the position is right.
One reason for voting against the amendment is that the process has not been completed. We are doing something for Lloyd's names that we have not yet done for the rest of the insurance industry. That is a reasonable ground and I should like the Minister to address it. Throughout I have sought to argue the principle that we are recognising the special character of insurance risk and the need to ensure that it will still be possible for risks to be taken so that we can continue to obtain the substantial invisible earnings that an experienced insurance industry stands to earn for us. Over the years, Lloyd's has played a particular part in that risk operation—a part quite different from the rest of the commmercial insurance industry.
5.30 pm
The events of recent years have placed a large question mark over Lloyd's future. We must all hope that the current reforms within Lloyd's will change not only the way that it is run but the way that it is perceived, because a very great deal of damage has been done. My judgment, for what it is worth, is that further damage will be done if there is not some reasonable tax framework, but I want to be sure that that framework is comparable throughout the insurance industry. If the Government cannot say that they are moving towards that, they will cast doubt on their case against Labour's amendment. However, if they can say that they are seeking to achieve comparability, I cannot understand why the Labour Front Bench should not welcome that with open arms.

Mr. Salmond: I want to pick up the point made by the right hon. Member for Berwick-upon-Tweed (Mr. Beith) about public perception and how the debate will be viewed outside the confines of the Chamber. The rush to provide assistance for Lloyd's names and the fact that so many of them are Conservative Members of Parliament will be widely understood outside the House.
I well recall that when we have debates on Members' salaries and secretarial allowances, Conservative Members—almost unanimously, although there are some exceptions—tell us to be very careful when voting on matters that affect our own finances. Today, they are silent about the care that should be taken in this debate and in the vote on the amendment.
People outside the House will be appalled by the proposed assistance for Lloyd's names because the Budget will impose severe hardship on whole categories of people. The hardship that those people experience daily is far greater than the hardship that any of the Lloyd's names have yet experienced. Those who will be greatly disadvantaged by the Budget will not welcome the rush to assist a fairly privileged group of people.
I can think of another comparison—those employed in the North sea drilling industry. Parliament is not providing the time and opportunity to discuss whether their jobs will be lost, but is providing the time and opportunity to discuss the rush to assist Lloyd's names. That brings the House of Commons into disrepute. I am not complaining about that because part of my role in politics is to ensure that the House is brought into


disrepute. The activities and the self-interest that are so clearly displayed in the debate will considerably extend that process. Whether or not the Conservative Members who are Lloyd's names decide to abstain in the vote tomorrow, they may come to rue the day politically when the whole process was embarked upon with such unseemly haste.

Mr. Dorrell: To hear the hon. Members for Banff and Buchan (Mr. Salmond) and for Neath (Mr. Hain) talk, no one would believe that the proposal is a revenue-neutral package that will deliver neither benefit nor cost to Lloyd's names in the aggregate.
The hon. Member for Neath asked me how the proposed figure was arrived at. Of course, it is an estimate. The change arising from the introduction of a special reserve fund will, when it is up and running, have a revenue cost of about £50 million a year, while the extra tax gathered as a result of treating profits on the premium trust fund assets as income will produce a revenue yield of about £50 million a year. Therefore, to talk about the package as a great tax break for Lloyd's names simply does not accord with the facts.
I want to deal with the points raised by the hon. Member for Edinburgh, Central (Mr. Darling). In the first part of his speech at least, he tried to be constructive and to respond to the issues of tax principle that we discussed in Committee. I welcome the fact that he has accepted that amendment No. 6 covers the concern that he expressed then. Grudging though that acceptance was, I hope that we can take it that that represents the Opposition's endorsement of our proposals to deal with that aspect.
In Committee, we agreed that two issues of tax principle underlie the treatment of the Lloyd's insurance market. First—and there is no disagreement on this in any part of the House�žwe cannot approach a policy for the taxation of Lloyd's names on any basis other than the principles of fiscal neutrality, which the hon. Member for Edinburgh, Central clearly espoused in Committee and repeated this afternoon. As has been recognised by several hon. Members who have spoken this afternoon, we are not introducing the proposals in response to short-term considerations at Lloyd's and we are certainly not introducing them out of a desire to create a tax shelter. As I have said, it would be strange if we were to do so as there is no revenue cost associated with the proposals. I agree with the hon. Gentleman about the importance of fiscal neutrality.
I also agree with the hon. Gentleman that the issue that underlies the Government's proposals for the Lloyd's insurance market is the general acceptability of reserving in the context of all insurance business. The right hon. Member for Berwick-upon-Tweed (Mr. Beith) said that he found the argument for reserving persuasive, especially in the context of the comparison between this country's tax system and that which prevails in other countries, notably France and Germany. That is one of the issues that the House will want to take into account when it considers the general issue of reserving for insurance business.
However, I suggest that the House take particular account not of that argument, important though it may be, but of the argument based on tax policy and tax equity as between one taxpayer and another. The Government have undertaken to publish a consultative document during the summer on the general question of reserving for insurance business. In that document we shall make it clear that the

issue of tax equity is whether it is sensible to continue to tax insurance business on the basis of an annually declared profit, when some insurance businesses specialise in covering catastrophe risks where it is in the nature of that business that catastrophe claims will not necessarily crystallise in the year in which the premiums are gathered to pay for them. Indeed, it is part of a catastrophe-based insurance business that several years' premiums may be necessary to cover the risk of a catastrophe. Annuality, in the context of such a business, may not be a sensible way of taxing that business. That is the principal argument for introducing reserving for insurance businesses.
I agree with the right hon. Member for Berwick-upon-Tweed that the argument applies equally whether the insurer is a company or an individual. I cannot understand the point made by the hon. Member for Edinburgh, Central about the distinction between an individual and a corporation as the insurer. If reserving is right to cover catastrophe when the insurer is a corporation, it is self-evident that the same must apply when the insurer is an individual. It is because the Government are receptive to that idea, and are proposing to consult on the detail and principle in the corporate context, that we propose the introduction of a catastrophe reserve in the Lloyd's market, where the limiting factor on the right of a name to commit resources to that reserve will be 50 per cent. of the pre-reserving profit and 50 per cent. of the premium limit of the name, the latter clearly being the restraining influence on the total size of reserve that can be built.

Mr. Salmond: Regardless of whether the Minister is right about the essence of the argument, if he were a Lloyd's name—which he is not—would he consider it appropriate, and in accordance with his conscience, to vote on the issue?

Mr. Dorrel: l: In such circumstances, I would accept the advice of the Chair on what was and was not in order.
The right to reserve is limited by both the provisions that I mentioned, as the hon. Member for Edinburgh, Central recognised. Furthermore, the right to withdraw from the reserve is limited, as the hon. Gentleman has now recognised. The quid pro quo is the commitment to build up a reserve limited by the size of the insurance business that is being done—that is the effect of the 50 per cent. of premium income limit—along with tax-free build-up of the assets within the reserve.
The hon. Member for Edinburgh, Central asked why the reserve should be allowed that tax-free build-up. There are two answers. The first arises from the reason for the creation of the reserve. It is being created to give extra security to the policy holder, assuring him that the claim he may need to make at some future date will be backed by adequate resources. It ensures that the insurer need not be driven to, and perhaps over, the limit of bankruptcy. That is the key consideration. It arises from the need for a test of liquidity within the insurance business, and the Government's desire not to require insurance businesses to declare profits that later prove nugatory, because when the claims bills come in the profit is found not to have existed.
We are limiting the right of a name to build up a reserve and limiting the size of the total reserve. We are introducing the reserve because we expect it to provide the policy holder with extra security. I therefore consider it sensible to reach the limit determined by premium income as quickly as possible in order to provide the insured party


of the insurance business with better security. That is the first tax-principle reason for allowing the reserve to build up without charging tax on the investment return.
There is a second argument, based on practicality. What would be the practical consequence of taxing the investment return on the build-up of assets in the reserve? Hon. Members on both sides of the House have agreed that payments into the reserve will be made before tax and that there will be a tax deduction for them—they will be tax free. Surely all hon. Members would want payments out of the reserve to be taxable income.
It is difficult to see how, in practice, tax-free payments into the reserve could be subject to tax as the reserve built up and then subject to tax again as payments out of the reserve were made to the names. That would mean taxing twice the investment return secured on the assets in the reserve. Surely it is much more simple and straightforward to recognise that the assets going into the fund should be tax free—that it is in the public interest to allow the fund to build up reasonably quickly to provide better liquidity for the insurance business and better protection for the policy holder, and then to tax withdrawals from the fund in their entirety at the time of withdrawal, recognising that the terms on which assets can be withdrawn are strictly controlled. The hon. Member for Edinburgh, Central has now recognised that.
I cannot commend the new clause to the House. It strikes me as being wrong in principle, because it counters the purpose of providing the reserve in the first place, and wrong in practice, because it would lead to an administrative nightmare in trying to distinguish between payments out of the reserve that had already borne tax, the investment return, and those that had not, the original capital payments into the fund. There are arguments of both principle and practice against the new clause, and I suggest that the House reject it.

Mr. Darling: I am sure the House will accept that there is a substantial difference between the taxation of individuals and company taxation. If we had the choice, we would all love to be taxed as companies: if we all had the option of setting expenditure against pre-tax income, no doubt we should take the opportunity to do so. Anyone who has ever been a schedule D taxpayer—as I have in my time—will know that it is far more advantageous than being a schedule E taxpayer, because of the various allowances. I am sure that both the Minister and the right hon. Member for Berwick-upon-Tweed (Mr. Beith) will accept that we already treat individual and corporate taxpayers differently. That is why I believe that we must be careful to put Lloyd's names on an equal footing with other taxpayers.
I have some sympathy for the right hon. Member for Berwick-upon-Tweed: having backed the Government in Committee, he must feel badly let down on discovering that they are now backing Labour on Report. I was pleased to note that Government amendment No. 6 is phrased in almost identical terms as new clauses 1 and 2, which I drafted in about 40 seconds. I wonder whether the parliamentary draftsman is being paid at the same rate as

I am to draft Opposition new clauses. I was surprised that the Government met the aims of our new clause as they did, but I am pleased nevertheless.
My hon. Friend the Member for Neath (Mr. Hain) and the hon. Member for Banff and Buchan (Mr. Salmond) were right to stress the position of Lloyd's names who are also Tory Members of Parliament. The rules of the House allow them to vote, but if they speak they must declare an interest. The fact is that most will not speak and will declare no interest; but, when the Division Bell sounds, they will walk into the Lobby along with other Conservative Members to vote themselves a tax concession. It is all very well to say, within the rules of the House, "It is not just them; it is others outside." I am sure, however, that many taxpayers would like their representatives to secure for them the same benefits that Lloyd's names in the House are able to secure for others outside.
The situation is unsatisfactory, and I consider that Opposition Members are right to draw attention to it. The Government's judgment is tainted by the fact that so many Conservative Members—double the party's majority—are Lloyd's names. Four members of the Cabinet are Lloyd's names: of course their judgment is called into question. When members of the public consider the funding of the Tory party, they are bound to ask whether the Government are fit to run the country when they cannot exercise unfettered, untainted judgment in this regard.

Mr. Dorrell: Where is the tax break in a series of proposals that are revenue neutral?

Mr. Darling: I was coming to that.
The Minister was plainly uncomfortable when I drew attention to the general issue—the difficulty in which he and his right hon. and hon. Friends now find themselves. It is no wonder that, over the past few weeks, the country has been preoccupied with the question of who funds the Tory party, and that so many Tory Members of Parliament have substantial interests outside the House. It is astonishing that some of them find time to be Members of Parliament, given the interests that they have to declare. I think that legitimate and important points have been raised in this short debate—not just about the reserve provisions available to Lloyd's, although it was right to draw attention to that, but about the fact that the Government have and represent so many vested interests that they cannot exercise the objectivity that most people expect of a Government.
As I have said, we broadly welcome this part of the Bill. It is important to establish matters on a proper footing. That is why we were very selective about the amendments that we tabled. If the Minister had been right, it would have been very tempting for some people to vote against the entire provision, but we did not do that—we wanted to focus criticism where it deserved to be focused. Before the acceptance of our proposal today, a tax shelter was being created. The Government have accepted that that has happened. They have therefore tabled an amendment that closes that tax shelter loophole.
One remaining matter must now be dealt with, and—

Mr. Alan Duncan: Will the hon. Gentleman give way?

Mr. Darling: No, I am just about to finish. The hon. Gentleman has not been here for the entire debate. He cannot expect to walk into the Chamber when it suits him


in order to raise a matter. If he wants to speak on Report, he can do so when we debate the many other matters that are before us.
Amendment No. 21 deals specifically with unfinished business. We are not persuaded by what the Government have said; therefore, we shall seek to press the amendment to a Division. I understand that, for technical reasons, the amendment will not come before the House until tomorrow afternoon, so we shall vote on it when we reach it. In the meantime, as the aims of our new clauses 1 and 2 have been fully met by Government amendment No. 6, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New clause 3

HOME INCOME PLANS (INVESTMENT BOND SCHEMES)

'.—(1) Where a person has sold since 6th April 1986, more than ten investment bond related home income plans to individuals, the provisions of this section shall apply to them.

(2) A person falling within the provisions of this section shall be entitled to a reduction in their tax liability for 1993–94 of the amount specified in subsection (3) below if the condition of subsection (4) below is met.

(3) The reduction in tax liability referred to in subsection (2) above shall be £1.

(4) The condition referred to in subsection (2) above is that no more than 10 per cent. of the investment bond related home income plans they have sold since 6th April 1986 have subsequently been terminated.

(5) The Board is empowered by this subsection to issue regulations defining the term "investment bond related home income plans".'.—[Mr. Darling.]

Brought up, and read the First time.

Mr. Darling: I beg to move, That the clause be read a Second time.
This is a different matter which, as the House will recall, was debated almost exactly a year ago. Indeed, the terms of new clause 3 are almost identical to those of the new clause that was tabled by my hon. Friend the Member for Brent, South (Mr. Boateng) on 8 July 1992. We make no apology for raising the matter again. The position has not changed substantially since the House last debated it.
We want to draw attention to the plight of between 10,000 and 15.000 people, some of whom lost substantial sums of money by purchasing home income plans in the 1980s. The plight of those people is yet another nail in the coffin of the faltering system of self-regulation that was set up by the Government in the 1980s. Those people, most of them elderly, did not want to be such a nail, but their plight highlights the failure of the self-regulatory system and its inability to prevent the sale of manifestly unsuitable products and to provide an effective and efficient compensation scheme.
This matter concerns Members on both sides of the House. Sales of home income plans were eventually stopped in 1991. The question that must be asked is, why not before? I believe that a proper system of regulation would have done so long before then.
Let us examine first the poor advice that was offered to these people. No regulatory system can ever make it impossible to sell unsuitable products; what it can do is to make it less likely to happen. Of course, the buyer must beware. He or she should take advice. If, however, the Government set up a regulatory system, members of the

public are entitled to rely on it and to assume that it works. The problem is that the present self-regulatory system does not work. In the case of home income plans, most people took advice but were given deliberately false advice by some very unscrupulous salesmen.
It is likely that in future more and more people will have reason to buy financial products, as a means either of saving or of providing a pension for themselves. If we intend to ask people to make such provision for themselves, it is essential that Parliament puts in place a regulatory system that is worthy of respect by the public and the industry. An efficient and effective regulatory system is good for the industry and for the public, but that is not what happens at present.
The problem is that the self-regulatory system is falling into disrepute, not just in the eyes of the public but in the eyes of the industry and the City. Hon. Members will no doubt have seen the remarks of the chief executive of the Prudential Assurance company, Mr. Mick Newmarch, and others. More and more people are calling for an end to the fiction of self-regulation and for the setting up of an effective, statute-based regulatory system in an area that is playing an increasingly important part in people's lives. That is why we have called repeatedly for a complete overhaul of the regulatory system.
I believe that we could draw on the experience of the Securities and Exchange Commission in the United States. I do not advocate its importation, but we need a single, powerful, regulatory body—perhaps building on the Securities and Investments Board that we have at the moment—that commands respect and strikes an acceptable degree of apprehension in the minds of all those whom it regulates. It should be free to set up regulatory bodies, as it sees fit. It should ensure, among other things, that there is a compensation scheme that works quickly and effectively. We do not have such a scheme at present. A review of the City's regulatory system, together with the enforcement of the criminal law for market-related offences, is long overdue. The Government should accept that, rather than sit back and wait for something to happen.
Investment-linked home income schemes were sold in the late 1980s to mostly elderly investors. Many of them have lost everything that they had. The idea was to unlock the capital in their homes, in the hope of earning a large enough return to make the repayments, as well as to provide extra income. Some of the people who bought those plans have told me that they were encouraged to do so by the remarks of Lady Thatcher when she was Prime Minister. She urged people to unlock their savings in that way. They feel especially bitter and let down because the Government's self-regulatory system has left them high and dry, following the failure of those plans.
Many investors were never told of the difficulties attendant on such schemes. Furthermore, it was not brought to their attention that those schemes were fundamentally flawed because, before any money was invested, the salesmen's fees and commissions were deducted. To illustrate the point, in one case a couple were to invest about £20,000, but subsequently found that over £2,000 had been deducted for the salesman's commission and fees, leaving insufficient capital to generate the required income.
Some of the schemes were sold by sharks—that is the proper word for them—who should never have been allowed to conduct business under the Financial Services


Act 1986. To its credit, the Financial Intermediaries, Managers and Brokers Regulatory Organisation has made valiant efforts to remove those people who should not have been allowed to trade, but it is a long haul. When the system was set up, more or less anybody who was trading previously was allowed to carry on business, although those people should never have been allowed to do so.
At stake is not just the character of individuals but the suitability of these people. The role of the regulator in ensuring that mainfestly unsuitable products are not sold must also be considered. A function of proper regulation is, I believe, to ensure, first, that the sales force is properly equipped and regulated and, secondly, that where manifestly unsuitable products are put on the market they are not allowed to be sold or, if they are sold, the circumstances in which they are sold are strictly regulated.
In this case, following the sale of home income plans in the late 1980s, the SIB received more than 1,500 complaints. I understand that more than £23 million has been paid to just under 2,000 investors. Others, however, are still waiting for compensation.
It is important to deal briefly with compensation. That is where some of the problems inherent in the present system are now becoming apparent. It should be remembered that, even where compensation has been paid, many people have lost heavily. One pensioner told me that it cost him £7,000 to get out of the scheme.
One of the difficulties is that the plight of these people depends to a large extent on who sold them their plan. If they were able to go to the insurance ombudsman, until fairly recently they received an extremely efficient service. The ombudsman took a broad view. If we look at his most recent report, we see that he took the view that
the elements of such Plans can only sensibly be regarded as parts of the same transaction. I therefore ask insurers to deal with the loss on the mortgage as well as that on the bond.
The ombudsman was prepared
to compensate policy holders in respect of any sums withheld from the mortgage funds, or withdrawn from the bond.
The ombudsman was also willing to make payments in respect of distress. He also, quite rightly, took the view that those who had sought advice were entitled to seek advice and that the cost of their advice ought to be recoverable from the insurer.
Unfortunately, because of a recent ruling, the scope of the insurance ombudsman's remit has been curtailed. I am not sure that he wanted it to be curtailed, but in a recent finding it was said that, due to technical reasons which I do not want to go into, it is not possible now for the insurance ombudsman to take as wide a view as he previously took about the scope of his powers. The fact remains, however, that we might want to examine the role of the insurance ombudsman. The victims of these schemes who until now were able to go to the insurance ombudsman found that most of, if not all, their claim was met.
That is not the case with other bodies. If individuals who lost out were able to go to the Life Assurance and Unit Trust Regulatory Organisation, the chances are that they would have received full compensation because there is no ceiling. Indeed, I have received few complaints from such people. If, however, people attempted to attach a building society, many would have encountered substantial difficulties.
Some building societies eventually proved to be co-operative–1 emphasise the word "eventually" because even some household names have proved reluctant to become involved. They were happy to take the profits that would have accrued had the policy worked out, but they seemed reluctant to become involved in compensation. Others refused to co-operate—for example, the Alliance and Leicester, the Bristol and West, the Chelsea, the Leeds, the National Counties, the Newcastle, Northern Rock, the Staffordshire and the West Bromwich building societies. They trade on their reputation, but the public should be aware that, where those building societies have been found wanting or where people have lost out, they have been reluctant to become involved, or have refused to become involved, in the ombudsman's scheme.
Unfortunately, the building society scheme is such that it needs the building societies to volunteer to co-operate. When the Government eventually embark on a review of the regulatory system, they should look long and hard at the compensation scheme which depends on the voluntary effort of building societies to co-operate. That seems absolutely intolerable.

The Economic Secretary to the Treasury (Mr. Anthony Nelson): I shall deal with this issue later, but I must point out to the hon. Gentleman that the Leeds proceeds on a case-by-case basis. I know that it was listed as one of the societies that had refused to become involved, but it has, in fact, been helpful. I am sure that the hon. Gentleman would welcome the opportunity to set the record straight for that particular society.

Mr. Darling: I am all in favour of forestalling correspondence that may ensue. The information that I received, which was given in good faith, was that the Leeds had not agreed to co-operate. The Minister tells me that it has agreed, and I am very pleased; perhaps the other building societies will take a leaf out of its book.
In any event, building societies should not be reluctant in the first place. Everyone agrees that the people whom we are discussing, who are mainly the elderly, have lost substantial sums of money though no fault of their own. I fully accept that a building society might take the view that it is not the prime mover—the real villain of the piece may be the independent financial adviser. However, the building societies became involved. I should have thought that, as a matter of good will, if nothing else, some would be willing to be a little more co-operative than they apparently have been prepared to be until now.
I repeat that it should not be a question of volunteering to co-operate. A proper compensation scheme should ensure that when people are in difficulties, having relied on advice and been completely innocent victims, they should not have to spend weeks, if not months or years, worrying and becoming involved in considerable expense to get reluctant volunteers to come to their rescue. The Minister will find that that is not the view of the Labour party alone.
If an investor found that he had to go to the Financial Intermediaries, Managers and Brokers Regulatory Association, which regulates independent financial advisers, and then on to the investor compensation scheme, I am afraid that the chances are that he would have experienced substantial difficulty because the maximum payout under the investor compensation scheme is £48,000. It will not pay compensation for any sums withdrawn, unlike the insurance ombudsman. It does


not compensate for stress or illness, and those who operate it do not believe that the people involved should have taken legal advice; if they had not done so, the chances are that many would not have received a penny. Of course, the scheme will not pay compensation for those who bought plans before 28 August 1988; nor will it pay if the independent financial adviser did not receive full authorisation. The difficulty in some cases is that the independent financial advisers held themselves up as being full FIMBRA members when they were not. A decent compensation scheme worthy of the name would not have left the victims high and dry.
I know that the ICS has had its difficulties. It is mindful of the fact that its payouts are an increasing drain on the industry as a whole. Indeed, it is the cost of compensation, among other things, that is holding up the formation of the new personal investment authority because, understandably, those who are to be members are worried about compensation. It is in the interests of the industry to ensure that we have an effective and efficient compensation scheme which does not cause further trouble to people who are in difficulties through no fault of their own but which accepts that, where mistakes have been made, investors should be compensated without making them jump through hoops to satisfy criteria that, in many cases, are unjustifiably stringent.
I should welcome an effective one-stop shop. Efforts to set it up have been fraught with difficulties. Initially, the Securities and Investments Board, albeit under slightly different management, was reluctant to set up a system. It did when pressurised to do so, but the SIB should reflect on the interests of the industry, let alone those of the public, and ensure that any scheme works and that it does not put investors to undue trouble in the exercise of remedies to which they are entitled.
Under Andrew Large, the new chairman, the SIB is attempting to clear up the matter, but the House should not be under any illusion: we are by no means anywhere near the end of the road. The fact is that people bought products that should not have been sold to them. Institutions such as some building societies want nothing to do with people who have lost out. Unlike Lloyd's names, who have also been the victims of difficulties, elderly people do not have a Lady Archer to stand behind them. They understandably feel very bitter at the fact that the Government are apparently indifferent to their suffering. That is a further illustration, if one were required, of the need for the Government to establish an effective regulatory system.
The House will know that there is a plan to set up a personal investment authority, if it ever gets off the ground. There have, however, been two years of horse trading between the vested interests. If trade unions had been left to put their affairs in order, the Government would have passed dozens of pieces of legislation in the intervening period; but, because of vested interests, one suspects, the Government have done absolutely nothing to ensure that an effective regulatory body is put in place to deal with this end of the market.
I suspect that we shall be told by the Minister that the SIB and others are making valiant attempts to deal with a difficult situation; that the Government intend to do nothing to amend the present law but hope that the industry will set its house in order; and that the industry has another last chance. The Government are very keen on giving people last chances when it suits them. Members of

the public, and especially the victims of the home income plan disaster, want action from the Government; they do not want platitudes or to be told that it may not happen in the future. They want a firm sign of government.
The Government have abdicated their role. They are paralysed and transfixed in the glare of growing criticism of the system and of calls for action. We have been calling for change, and the chairman of the London stock exchange has called for a new body to examine the criminal law and the prosecution of market-related offences. As I said, the chief executive of Prudential Assurance has called for an end to self-regulation, and others are doing the same. In today's Financial Times, the Lex column calls for an end to the present system. The 10,000 to 15,000 people who suffered because of the failure also demand action. In the face of those calls, surely we deserve better than another tepid, uncertain response from the Government.
In an interview with the Financial Times last November, the Financial Secretary threw in the towel and said that there was to be no new legislation. He told the SIB that the Government would not legislate, and I suspect that Lloyd's has been told the same thing. The Government have a role to play in putting the present system to rights. We need a proper system of regulation to deal with such a crucial part of the economy and to protect members of the public. I hope that tonight the Government will at least say that, for a change, they are prepared to change from their present tack of doing absolutely nothing.

Mr. William Powell: I warmly welcome many of the remarks made by the hon. Member for Edinburgh, Central (Mr. Darling), but when he went into rhetorical flights of fancy about the Government I parted company from him. Nevertheless, his general analysis of the problems faced by those who purchased home income plans was accurate. He is right to say that the unfortunate scandal—and it has been a scandal—has revealed gaps in our regulatory system. I congratulate him on giving valuable time to raising the matter this year, as he did last year.
I also pay tribute to many of my colleagues on both sides of the House who have devoted a great deal of time over the past year to fighting on behalf of their constituents who have suffered grievously as a result of this scandal. I pay tribute to my hon. Friend the Member for Romsey and Waterside (Mr. Colvin), who has raised the matter in Adjournment debates on more than one occasion. I also pay tribute to my hon. Friend the Member for Ryedale (Mr. Greenway), who has acted as chairman of the all-party committee on home income plans which set up so many important meetings with the various bodies concerned.
I pay tribute to all my colleagues on both sides of the House who, in relation to the West Bromwich building society, have contacted me as a result of the way in which their constituents have been afflicted and affected by the extraordinary way in which that building society has behaved in connection with this matter.
I shall devote my short remarks to the way in which the West Bromwich building society has tried to wiggle and wriggle to avoid its responsibilities in a very serious matter. Many of my comments will come as a shock to those in the west midlands who have trusted in the good name of the West Bromwich building society. I will refer to individuals and to conduct which is criminal in its nature.
About 800 people took out home income plans which were ultimately backed by cash from the West Bromwich building society. There was always an intermediary and that intermediary was usually an organisation known as Frew Fisher Smith. In effect, it introduced clients to the West Bromwich building society which advanced money. Those of us in this House who have tried to seek some small measure of justice for our constituents have met a brick wall. It would appear that everything was down to the intermediary and had nothing to do with the building society.
The way in which the West Bromwich building society has behaved and has tried to avoid its responsibilities has been utterly scandalous, deeply shocking and would certainly merit much closer investigation, particularly by the police. I choose my words carefully. I believe that a great deal of criminal activity has been taking place involving forgery and fraud.
In respect of forgery, I have seen and am quite aware of documents, which have been signed by constituents of mine and of other hon. Members, which have undoubtedly been changed after they were signed by the person who was seeking to borrow money. Incomes have been falsified. There have been greatly enlarged falsifications to justify the pushing out of much larger sums of money than our constituents wished to borrow in the first place. Documents were altered after the event without the knowledge of our constituents. That forgery led to fraud and no doubt very high commissions for those involved in that activity. The result has been misery across the country.
So far as I am aware, every one of my constituents who took out a home income plan took one out which was backed ultimately by the West Bromwich building society. As I have said, about 800 people are affected across the country. Literally hundreds of hon. Members have drawn to my attention the fact that constituents of theirs have been involved through the West Bromwich building society. Everyone who has lost money and has faced considerable difficulty owes a debt to hon. Members who have pursued the matter, often in circumstances of great difficulty and in the face of the utmost indifference on the part of that particular building society.
I want to take this opportunity to pay tribute to those who took out home income plans and have grouped together to campaign on behalf of those who have been losers. A dedicated group of people across the country has devoted many hours to fight for those losers.
The matter has been so serious that, in one case, an elderly constituent of mine committed suicide. There is absolutely no question but that the behaviour of the West Bromwich building society triggered that. As one would expect, that has led to enormous problems for the family.
As this matter has been going on for so long, we find that elderly people are becoming more and more worried. They see their debts growing and they are extremely worried about how they can meet those debts. They are terrified that the building society will move against their estates and that the modest inheritance, which they hoped to pass on to their children and members of the family, is likely to go to the building society and all those involved.
Whenever I tried to approach the West Bromwich building society, I met with indifference and a total refusal,

on the building society's part, to face up to the gravity of the situation. That refusal was exhibited by the chairman, Mr. Baker, and by the chief executive, Mr. Elliott. From my experience of those two gentlemen, I believe that they should not be holding the kind of posts that they hold. Neither of them has shown the slightest interest in coming to grips with what has happened. It is a serious scandal that people who hold positions of trust, as they do, should seek to brush aside what has happened and pretend that it has absolutely nothing to do with them.
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I concentrate my remarks on the West Bromwich building society. I have had almost no dealings with any other body. I am aware that, where people have borrowed from other societies, some have had satisfactory outcomes and conclusions, and others less so. However, I know about the West Bromwich building society.
When my constituents and the constituents of other right hon. and hon. Members asked for a holiday on the interest payments while the matter was sorted out, the West Bromwich building society absolutely refused even to contemplate the idea of freezing the interest at the point of the problem and trying to resolve the matter thereafter. As a result, compound interest is being added to the debt and that debt is growing larger and larger. As nearly all the people—if not all—who borrowed through the home income plans had modest levels of savings, they increasingly find that their debts are at least as big as, if not in excess of, the asset that they currently hold. That is obviously desperately worrying for those people.
That is not the only point which is so scandalous and which makes it necessary for changes in the regulations and the regulatory framework to ensure that that kind of thing can never happen in future. We must also consider the fact that our constituents were told that if they simply signed the document put before them everything would be taken care of. No adequate explanation was ever given about what those people were signing up to in the first place.
It is worth bearing in mind that many of the people who signed up were exactly the kind of people who needed an explanation of what was contained therein. Responsible lenders, responsible banks and responsible solicitors would have ensured that a copy of the documents which our constituents signed would have been available to them and that the contents were carefully explained, clause by clause, so that the borrowers were aware of what they were signing up to.
In the case of nearly every one of the West Bromwich building society borrowers, through the intermediary, that did not happen. That is a very serious state of affairs. By lending money on the basis of home income plans and not ensuring that that happened, that is a flagrant breach of the duty of trust which the West Bromwich building society owed to its own depositors. It lent depositors' money in risky circumstances without taking the most elementary steps to ensure that the borrower was aware of the obligation being entered into. I indict the West Bromwich building society for that as well.
One has to say that there is precious little evidence that the financial status of those people who were buying home income plans was carefully and properly investigated. Indeed, I have already asserted, and believe it to be true and am aware of documents where this has happened, that the financial status was subsequently altered, by forgery,


after the income had been declared in order to justify the kind of advance which the intermediary wished to obtain with, of course, the commission that went with the much larger loan than might otherwise have been the case.
It is an absolutely scandalous state of affairs. If anything required police action, it is that each and every one of the mortgage applications to the West Bromwich building society now needs to be examined by the police. There are cases in which there was subsequent forgery of the financial declaration. Those matters need to be investigated and persons need to be brought to trial. If they are found in the intermediary or found in the building society, there should be no hiding place for those who have done this.

Mr. Darling: I am listening carefully to the hon. Gentleman. He has pursued these matters vociferously and vigorously on behalf of his constituents. Has he reported any of them to any authority, whether the police, a supervisory body or the Government? The hon. Gentleman's allegations are extremely serious and should normally be reported.

Mr. Powell: The hon. Gentleman is absolutely right. All those matters are available; they have been reported, and they need to be further reported. I have not reported them to my hon. Friend the Economic Secretary to the Treasury, but I have made others aware. They are matters for the police. There are West Bromwich borrowers—if I may refer to them as that, although the West Bromwich would always hide behind the intermediary, as the hon. Gentleman identified in his own speech—who have been in touch with the police about these matters.
I hope that, as a result of what is said tonight, there will be a much more determined investigation than has currently been the case. That is precisely why I am taking advantage of the opportunity to ensure that matters which have been clear just below the surface for some time are now brought out in the open. Those who have responsibility for them have to face their responsibilities.
Although the new clause may not be exactly the right way of proceeding—I am open to argument about that—it paves the way for an important discussion about this matter which has concerned many of our constituent s. We have always been faced with the fact that the West Bromwich building society relies upon the existing methods of regulation. Those methods have been shown to be wrong. It would be absolutely unacceptable to hon. Members if we discovered that people are selling home income plans. I am not aware of it, although there is the suggestion that some intermediaries might be trying to market such plans now, but, in view of experience from the mid to late 1980s, if any financial agent was seeking to market such plans, it would be a matter of the greatest scandal.
We cannot shut the stable door after the horse has bolted in relation to those who have already purchased, but for new purchases to be taking place, with people not being advised of all the difficulties that there are in law and so on, would be truly scandalous.

Dr. Lynne Jones: Will the hon. Gentleman join me and other hon. Members in calling for the Securities and Investments Board to deregister the West Bromwich building society from being

able to practise investment business, as that organisation has clearly proved itself to be incapable of looking after the interests of people who lend to it or borrow from it?

Mr. Powell: The hon. Lady raises a very important point. She has been most assiduous on behalf of her constituents who have been affected by the West Bromwich building society. Therefore, she makes her request to me from a position of personal and close knowledge of the way in which that building society has been operating. I very much agree with the sentiments behind what the hon. Lady has said.
I hope that the building societies' authorities will look extremely closely at this matter. If I had any deposits in the West Bromwich building society, I would be extremely anxious and concerned about the competence of the people who are presently entrusted with looking after those deposits. I hope that the authorities that have overall responsibility for building societies will take close note of what the hon. Member for Birmingham, Selly Oak (Dr. Jones) has said.
I do not want to go on very much longer; I think that I have said enough to show how deeply unhappy I am at the way in which my constituents have been treated. I know that constituents of my right hon. and hon. Friends and others have been affected. Unfortunately, that disgraceful pattern of events has already taken place. It is obvious that the existing pattern of regulatory law has proved to be too insubstantial to deal with it.
My experiences of the West Bromwich building society have been so serious that I have felt it necessary to take advantage of this opportunity to try to bring out into the open what I regard as some of the most disgraceful behaviour by people who are entrusted with looking after other people's money that it has been my misfortune to learn about.

Mr. Alan Milburn: It is a pleasure to follow the hon. Member for Corby (Mr. Powell), who has amply demonstrated the fiasco behind home income plans. He has made several serious allegations, and I am pleased that he has brought them to the attention of the House. I hope that the Economic Secretary to the Treasury not only listened to what the hon. Gentleman said but will say what action he intends to take as a result of those allegations.
My hon. Friend the Member for Edinburgh, Central (Mr. Darling) dealt comprehensively with the failures of the self-regulatory system and the need to change that system and learn the lessons of the disaster of home income plans. As he said, up to 15,000 people were caught as a result of the sale of those plans in the mid to late 1980s. The trap that they are now in is certainly not of their making. Some of them have lost their homes, many of them have lost their life's savings, and many of them presumed that the home income plans that they purchased would not only pay off their mortgages but guarantee them a substantial slice of additional income for many years to come. When they were sold those plans, they were told that they were as safe as houses. Home income plans have not only turned out to be unsafe in respect of their mortgages but have cost them a pretty penny.
As the hon. Member for Corby said, when they were sold, none of the home income plans was issued with a health warning. Many people who bought home income plans are among the most vulnerable members of society. Many were elderly people, looking to pay off their


outstanding mortgages and for some additional income. The Financial Services Act 1986 has obviously failed to stop the sale of those plans, and it did not ensure that they carried a health warning.
The chief executive of the Financial Intermediaries, Managers and Brokers Regulatory Association, Godfrey Jillings, has called home income plans inherently flawed. He made that statement after the event, because it was not until 1990 that FIMBRA and its counterpart, the Life Assurance and Unit Trust Regulatory Organisation, wrote to their members reminding them of their duty to recommend only policies geared to an individual's specific needs. The lack of public health warnings meant that many unauthorised firms, as my hon. Friend the Member for Edinburgh, Central said, were able to continue selling to unwitting victims even when it started to become clear that a home income plan scandal was brewing. It was not until a year later that the regulatory organisations effectively banned home income plans.
The mess was the making of the regulatory organisations and their failure to make clear to the public the inherent dangers of investing in those plans. Clearing up the mess has been as inadequate as the system that created it in the first place. My hon. Friend alluded to the rather different treatment available to the victims of home income plans, depending on whether they bought through an independent financial adviser or from elsewhere. He went into that in some detail.
The miserly conduct of the investors compensation scheme was thrown into sharp relief recently in a court case when it became clear that the ICS was refusing to pay any compensation on behalf of a victim who had died before the rogue firm was declared in default. That meant that a widow or widower might get only half the compensation that she or he had hoped for, which would not be enough to keep them in their home. According to the solicitor who was dealing with many of the victims, in the two and a half months since the ICS took that decision, it had halved the compensation paid to a surviving spouse in at least 12 cases. He warned that many more people would be affected unless that practice was reversed.
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There are a number of lessons to be learnt from the mess. The hon. Member for Corby has called for police investigations. My hon. Friend the Member for Edinburgh, Central alluded to the need to change the regulatory system and to introduce reform as quickly as possible. As a result of the home income plan debacle it has become clear that lax regulation costs people their homes; it costs people their lifetime's savings; it leads to a great deal of stress and worry. It even led eventually to one person's suicide.
Too many independent financial advisers are simply incapable of doing the job and of looking after their customers responsibly. Unless change is made, many of us will be left with the impression that the industry is run by cowboys. I am sure that the Minister does not wish that impression to be conveyed, and that he will have something positive to say.
We need tighter regulation because many of the people who are sold home income plans are not in a position properly to assess them unless public information is made available. The regulatory organisations are running a

telephone helpline and making information available through citizens advice bureaux, but it is too little, too late. Information should have been available to people contemplating investing in home income plans before they got into trouble.
Lax regulation does not work. I hope that some lessons have been learnt from the debacle and that when the Minister replies he will tell us the Government's thinking on compensating the victims and ensuring that they get a decent deal, and on ensuring that this kind of fiasco does not happen again.

Mr. Nelson: It is not surprising that the debate has evoked strong emotions on both sides of the House. I welcome the opportunity to make a few remarks in response to the new clause because I acknowledge that the issue has caused great personal distress to those who have been affected. It has come to the attention of many Members of Parliament who have taken up cases on behalf of their constituents, and it is right that the House should have an opportunity to be brought up to date with how those cases are being dealt with, as well as to examine some of the more fundamental issues of supervision, regulation and compensation.
The hon. Member for Edinburgh, Central (Mr. Darling) used the debate—as he has some others—as an opportunity to call for a fundamental overhaul of our supervisory system, and he reiterated his call for a full-blown statutory system. I have expressed my views on the issue and shall not repeat them, save to say that whatever system one has—statutory, self-regulatory or semi-self-regulatory—it does not, of itself, ensure that no losses will arise, that no fraudulent activities will take place and that no bad advice will be offered. One must not confuse the structures with the need to provide adequate supervision and regulation under whatever structure there is.

Mr. Darling: Will the Minister tell the House whether he and the Government are still wedded to the existing system of self-regulation, and whether there is any hope for any change originating from the Government?

Mr. Nelson: The Government have made it clear on a number of occasions that we believe that the structure provided by the Financial Services Act 1986 has been a considerable improvement, and that further measures can be taken to improve the system of supervision provided under that legislation. That was the purpose of Andrew Large's review, and it is the purpose of some of the changes being prepared by self-regulatory authorities.
I anticipate problems and great damage if any Government were to visit upon the financial services industry the blight of major reorganisation without a consensus as to what should replace the current system, and without confidence that such a reorganisation would result in a better system of supervision. When there is scope under the existing legislation significantly to improve the effectiveness of investor protection, it seems to me that the responsible first recourse of government is to take that approach. That is precisely what we are doing.
I do not rule out, for the long term, changes in response to events and I am always prepared to have a running review of those issues. However, when I am trying to support moves, for example, for the personal investment authority to get off the ground, it would not be responsible or helpful to suggest that we intend to throw the deck of


cards into the air and start dealing again, as far as our system of supervision and regulation is concerned. I prefer to address the issues of inadequacies in supervision and regulation where they occur, and not just the structure. It is the human decisions, as much as the institutional structures, which result in good or bad investor protection.
Many hon. Members have spoken about home income plans. Some home income plans are fairly benign; others have caused very serious problems. Home reversion schemes, whereby the owner of a property sells all or part to the scheme provider for an immediate cash sum and carries on living there until he dies, are sometimes a source of distress to next of kin and inheritors, but they are popular and there is nothing necessarily wrong with them, provided that people are well informed and know what they are entering into.
Purchase life annuity schemes can be a sensible source of additional marginal income for people. As the House will know, under such schemes the home owner takes out a mortgage loan on the property and uses the cash to buy an annuity, which services the loan interest and leaves an income. As tax relief up to £30,000 is available on the loan used to buy the annuity, the scheme can provide a positive—if modest—income after meeting the interest due on the loan.
The schemes that have caused most concern are those in which the owner takes out a mortgage on part of the value of his home and invests the proceeds in an investment bond. I understand and fully sympathise with hon. Members' concerns about the plight of home owners—usually elderly—who have been sold unsuitable home income plans. As the House may be aware, action is continuing to deal with the problem and I shall describe a little of the progress that has been made.
The financial services regulators, the Financial Intermediaries, Managers and Brokers Regulatory Organisation and the Life Assurance and Unit Trust Regulatory Organisation., have amended their rules to prevent further marketing of inappropriate schemes and have taken disciplinary action against the firms concerned. To answer the point mentioned by my hon. Friend the Member for Corby (Mr. Powell), therefore, such schemes should not be sold in the future.
In addition, action is being taken to help those who find themselves in difficulty. Many life offices have made good the damage that investors have suffered. Some investors may alternatively be eligible for compensation, either from the investment company or from the investors compensation scheme set up under the Financial Services Act 1986. Last week I went to see for myself, at first hand, how carefully the ICS staff investigate those cases, and I should like to take this opportunity to pay a tribute to them. I watched and spoke to the staff, and in my judgment they are extremely thorough and as expeditious as they can be in dealing with the many claims that have been brought to their attention.
Firms regulated by LAUTRO have now paid out £8 million.

Mr. Darling: I am glad that the Minister mentioned the ICS. No one is criticising the staff; the system is at fault. Is it not an anomaly that an investor who goes to the insurance ombudsman will get more or less full compensation, including compensation for legal costs, stress and any payments made, while for those who go to the ICS the upper compensation limit is £48,000 and no

other payments are made? In other words, for the latter there is only partial compensation. Does the Minister agree that it is anomalous for the end result to depend entirely on a stroke of luck or bad luck as to which regulator or authority the investor approaches?

Mr. Nelson: I acknowledge that there are differences in the overall amount of compensation that might be available—although in the vast majority of cases the amount will be less than the £48,000 for which the scheme provides. I acknowledge also differences in approach. That aspect was subject to judicial review, which ruled in favour of the fair basis of compensation provided by the ICS. It is an inherent problem of mixed-product schemes—and one which legitimately gives rise to concern—that where a number of institutions or intermediaries are involved in packaging a product sold to an investor one may find different acknowledgments of the liability which may be met. LAUTRO has generally been rather fast and, some would say, more generous. Compensation has certainly been paid more quickly than in cases that are the subject of resolution by ombudsmen or the one-stop procedure.
Each case is different, and many cases are complicated. That explains why a number remain outstanding. Considerable progress had been made in clearing up and resolving cases since the issue was last raised by the hon. Member for Brent, South (Mr. Boateng) in a similar amendment last year.
Firms regulated by LAUTRO have paid £8 million in compensation to more than 920 investors, and investors have been restored to the final positioin in which they were before they became involved in the scheme. Between 400 and 500 cases are still being considered by the insurance ombudsman. Many cases are complex and may involve the responsibility of a number of different parties—for example, the financial adviser, the solicitor and the lender.
The liaison group established by the Securities and Investments Board announced in March 1992 a one-stop procedure for handling complaints under which investors in such a scheme on the recommendation of a FIM BRA member who are in difficulty as a result and who have received no satisfaction can pursue all their complaints through FIMBRA—even if their complaints involve others besides the FIMBRA member. The majority of complaints against FIMBRA members received so far are being handled by the ICS, which deals with cases in which firms are in default. The making of an award under the FIM BRA arbitration scheme can drive a firm into default.
So far, 15 of the independent investment intermediaries that were members of FIMBRA—that is, most of them—involved in marketing the schemes have been declared in default under the investors compensation scheme. Payment or offers of payment amounting to more than £16 million have been made to more than 1,000 investors with those firms, and a further 600 claims are being considered.
In many of those latter cases, investors have been told that they are eligible to receive compensation but that their claims cannot be finalised until financial details are received from the various third parties or because the investors have not yet encashed their investments. That might include the insurance company whose insurance bond was used or the solicitor who dealt with the mortgage documents. Some building societies have agreed to co-operate with the building societies ombudsman in using the one-stop procedure. Discussions continue with others with a view to encouraging them to do likewise. No doubt


those societies and other organisations will note the strictures and comments of hon. Members who contributed to this debate. The Government hope that they will feel able to co-operate in that way. 
More than 120 cases have been processed through the one-stop procedure, 29 cases remain in the FIMBRA arbitration process and 19 are being investigated. The remainder have been settled, rejected or referred to the ICS. Meanwhile, the building societies concerned have made it clear that they want elderly borrowers to remain in their homes, resolve their worries and avoid hardship.
The regulators are concerned to ensure that no one who took out such a plan is overlooked. On 7 June, the SIB published a fact sheet, "Home Income Plans: Grounds for Complaint", which sets out the characteristics of investment bond based schemes and encourages anyone who has taken out such a scheme and thought that they were given bad advice, or were not adequately informed of the risks, to contact the SIB. It has also established a helpline for two months to advise those who have not complained before on the action that they should take. Since it was established, a further 24 cases have been identified and referred to the appropriate complaints handling body under the one-stop procedure.
I was amazed that when that fact sheet was sent out and investors were invited to say whether they thought that they had grounds for complaint, and a number completed a questionnaire—when 24 cases were identified as being serious enough to merit investigation—13 respondents wrote to express their interest in home income plans and asked how they could take one out. If anything, that emphasises the point made by my hon. Friend the Member for Corby that the public need good advice—whether it is independent, professional or simply sound common sense. Even now, the public are not necessarily aware of the dangers involved.
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I have said previously that, although those involved in selling or wrongly selling such schemes must bear the principal responsibility, and although a statutory compensation scheme is available for those who cannot be assisted in other ways, ultimately the public must exercise a degree of buyer beware. They should observe five rules. They must beware, spread their investments or risks, seek good advice, read the small print and not confuse authorisation with compensation. We cannot provide a fail-safe system of statutory regulation or even self-regulation in this or other areas. We can do our best, and we can take action against those who are in default. That is being done, substantial progress has been made, and the remaining cases should be dealt with over a period of time. I hope that all parties concerned, and particularly the institutions, will play their full part in co-operating to bring this sad episode to an end and to ensure the rightful restitution of funds to those who have undoubtedly suffered greatly.

Mr. Darling: At the start of this debate, I indicated that I had borrowed heavily from last year's amendment in the name of my hon. Friend the Member for Brent, South (Mr. Boateng) and, with respect, I believe that the Minister

has borrowed very heavily from his speech last year. As he spoke, I recognised several passages that appeared in the columns of Hansard in July 1992.
I emphasise that no one is suggesting that we should throw the existing regulatory system into the air like a deck of cards and wait to see what lands. There is a growing consensus about what needs to be done. I suggest that we build on the present system but remove the self-regulatory element to end the present situation whereby people can pick and choose between regulators. People can decide to do nothing because there is no pressure on them to do anything. Above all, we must get away from the state of affairs that the Minister signalled again today, in which the Government will do nothing because that is to give the green light to those outside who wish to do nothing to put their house in order.
I remind the Minister that the financial services industry is of crucial importance to the economy, the people whom it employs, and those who buy the industry's products. We are calling for an overhaul of the present system and the establishment of statute-based regulation to protect not only the public but the industry itself.
I am sorry that the Government will not accept that proposal. I am sure that the 10,000 to 15,000 people who bought fundamentally flawed schemes will be bitterly disappointed. Our proposals are made not in any partisan sense. There is support for change outside the House as well as in it.
I am astonished that the Minister made no reference to the comments of the hon. Member for Corby (Mr. Powell) about the West Bromwich building society. I thought that the Minister would say something—even if he only expressed concern. I hope that the Minister realises that concern is felt by hon. Members on both sides of the House. Earlier this year, I tabled two early-day motions which attracted more than 100 signatures. I was astonished at that level of interest. Conservative Members tabled early-day motions that were slightly different, but they also attracted supporters.
The Minister must accept that there is concern and that it is not a question of criticising the industry, but a recognition that the industry is of crucial importance. People will want to buy more and more products and it is therefore important that we have a system of regulation and compensation that works. We do not have that at the present time.
In his tour round the compensation scheme, the Minister might have commented a little more on the anomalies between the various schemes. He said that the ICS scheme was fair and that he was glad that the judicial reviews found in its favour. The judicial reviews are to do not altogether with fairness and objective assessment of the pros and cons of such schemes, but with a narrow interpretation of administrative law, which is not quite the same thing. I hope that the Minister will realise that many people will find it curious that one scheme gives help for legal costs while another does not. There must be something wrong with that system when they are dealing with the same product.
The hon. Member for Corby and my hon. Friend the Member for Birmingham, Selly Oak (Dr. Jones) have said that one of the problems is that we have mixed-product schemes which allow the various organisations concerned to duck behind one another, saying that it is nothing to do with them. The hon. Member for Corby also made the point, which the Minister must accept, that even if the


Minister does nothing else and even if everything in the regulatory system needs no alteration, there is something wrong in this area. I am sorry that he did not do anything more.
By tabling the new clause, I hoped at least to provoke the Minister to say something different. Since the interview in the Financial Times last year, he has a new boss, a new Chancellor—a man of the people, who comes from the industrial midlands, no less. I had thought that with that new broom we might have seen some changes in financial regulation, but we have not.
My new clause is highly technical and was engineered to produce this debate. I am sorry that the outcome has not been more positive. I can only hope that those who are trying to resolve the situation will redouble their efforts. I am sure that many people long for the day when we have a Government who are prepared to govern in this area. They are keen on interfering in all sorts of trivia, yet when it comes down to such an important, fundamental point, the Government have absolutely nothing to say. I wonder why that can be.

Question put and negatived.

New clause 8

POWERS OF THE BOARD OF INLAND REVENUE

'. The Taxes Management Act 1970 shall be amended as follows—
(a) section 20, subsections (2) and (7A) shall be deleted;
(b) section 20B, subsections (6)(a) and (6)(b) shall be deleted and replaced with "the Commissioner giving the consent has also given approval to the exclusion.".'.—[Mr. Beith.]

Brought up, and read the First time.

Mr. Beith: I beg to move, That the clause be read a Second time.
The new clause seems rather technical and raises a wider issue. It seeks to ensure that the agents of Government charged with collecting taxes are doing so in a fair, even-handed and responsible way. It specifically seeks to guarantee that, when a tax inspector tries to obtain documents or information from a taxpayer or third party, he does so only with the appropriate judicial approval and that the board of the Inland Revenue does not give the impression of acting as judge, jury and executioner.
Section 20 of the Taxes Management Act 1970 deals with the powers of inspectors to demand the production of documents from a taxpayer and third parties. Under that section, an inspector who believes that he needs access to a document in the possession of the taxpayer or some third party, for example a bank, can get an authorisation to serve a notice for material in two ways: by seeking the approval of the board of Inland Revenue itself to serve the notice, or by asking for the approval of a special or general commissioner. That appeal, whether to the board or the commissioner, is heard in private. The taxpayer need never be told of anything said about his tax affairs and has no chance to put his case against the inspector. The commissioner is under no obligation to keep minutes of the hearing, so often it is impossible to verify what has been said.
There are circumstances in which a degree of secrecy may be necessary. A crooked taxpayer could take advantage of the advance warning of notice. That is all the

more reason why the process should be seen to be completely above board and should carry the most stringent checks on the correctness of its application.
There is a further reason why the process is of importance to certain innocent taxpayers. There is increasing evidence that section 20 actions are being used by banks as a reason to limit and even to withdraw credit or access to banking facilities. We all share the anxiety that, if some inquiry were made about us for no reason by a credit reference agency, it might panic our bank into not treating our account in the normal way. That inquiry becomes a real fear when it comes to light that there are cases where banks have ceased to operate an account in the normal way or have not allowed the taxpayer to do so when the section 20 notice comes to them. The bank might not even tell the taxpayer, the small business man or whoever why it is doing that, because it does not wish to alert him to the Inland Revenue's action and it would not be proper for it to do so. Suddenly the business man, who has already been adversely affected by his protracted arguments with the Revenue, finds that his bank is not operating in the normal way for no apparent reason. It is hard to imagine anything more likely to give someone a persecution complex.
In that context, it is not acceptable that the Inland Revenue should be able to act alone and without regard to outside control. The new clause removes the powers of the board to issue its own notices so that, in future, the only way in which an inspector could get a notice under section 20 would be to seek the approval of a commissioner acting in a judicial role or independently of the board.
It is not that tax inspectors are crooked or that they engage in anything other than proper tasks on our behalf, but occasionally there is an excess of zeal, as Ministers know from the cases in their constituencies, where power seems to have been used in circumstances that are not merited and which represent an unfair imposition on what turns out to be an innocent taxpayer.
It is equally important that the work of the Inland Revenue be seen to be carried out in a fashion that is transparently honest and fair to the taxpayer. That is part of the process of maintaining confidence in our system.
There is another aspect that has been brought to light, as so many things have been, by the Asil Nadir case. What a lifting of the stone that case was and how many things were found beneath it. One thing that curiously came to light was that tax officials had given details of Mr. Nadir's tax affairs to the stock exchange. Although few Opposition Members have any sympathy for Mr. Nadir, it raises the possibility for other taxpayers that there may be unauthorised disclosure by the Revenue of documents to somebody or some agency through which they might pass to a business competitor, to a potential creditor or to someone who in some way might, with no proper legal authority, use that information to the detriment of the taxpayer. The discovery that the Revenue is not above disclosing information in a way in which it is legally precluded from doing must add to the arguments for proper protection when the procedure is used to obtain documents.
There are reasonable ways in which that protection can be achieved by following certain procedures. First, hearings for the approval of an inspector's request for notice should have to be properly recorded and the taxpayer should be given a right to see what was said about him and his affairs at any later appeal.
Secondly, looking back to the House of Lords decision in 1991 in the case of T. C. Coombs and Co., to authorise a notice, the commissioner should be satisfied that, in all the circumstances, the inspector is justified. There is an implied duty on the inspector to divulge all relevant information, even if it does not support his case.
With that case in mind, we should ensure that both aspects are guaranteed. The first is guaranteed in section 20, but the second is not. There is no guarantee that the implied duty to divulge all relevant information will be exercised. If that were to be made a statutory requirement, and if the taxpayer were given the right to discover what had been said, it would be a reasonable safeguard.
Thirdly, we should ensure that when a commissioner hears a case for a notice under section 20, he should not be able to hear a future appeal relating to that taxpayer. It is not clear how often, if ever, that actually happens. The Minister may know how often the commissioner who hears an application for notice under the existing procedure turns out to be the commissioner who deals with that taxpayer's affairs at a later date. If a commissioner has already heard in private and without challenge many arguments of detail about that taxpayer's affairs, it may not be proper for him to be the person judging independently at a later stage that taxpayer's affairs. We believe that we should have such a safeguard. To what extent it is a safeguard observed in practice at the moment we do not know. The Financial Secretary may know the answer.
Those are the grounds on which we tabled the new clause. We believe that an important principle for the protection of taxpayers is involved even in the limited area in which, we all recognise, there may need to be the use of powers for the disclosure of documents so that fraud and evasion of taxes are not allowed to continue.

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Mr. Dorrell: I of course agree with the right hon. Member for Berwick-upon-Tweed (Mr. Beith) that the question of the powers vested in the Inland Revenue to secure the proper collection of taxes is a proper concern of civil liberties and that we have to ensure that the balance between the powers of the Inland Revenue and the rights of the taxpayer is maintained. However, it is important to be clear about the circumstances in which an information notice can be served on a taxpayer.
The right hon. Gentleman is right to say that there are two routes by which an information notice can be served on a taxpayer. Either—this is the normal case—an inspector applies to the commissioners for an information notice and the commissioners grant it in the normal conduct of their duties—that is, on the commissioners' authority on the initiative of the inspector—or there is a power for the board to issue an information notice on its own authority without needing to go to the commissioners.
The right hon. Gentleman did not draw the attention of the House to the provisions in the Finance Act 1990 that limit the circumstances in which the board may legitimately use that discretion to circumstances in which the board can be satisfied that completion of the normal process—that is, applying to the commissioners—would lead to the danger that the right of the Revenue to collect

tax that is due would be prejudiced. I am sure that the right hon. Gentleman recognises that that is a legitimate concern and that the due process can on occasions lead to delay. Where there is a danger that the delay caused by due process would lead to a taxpayer avoiding tax that is legally due, it is reasonable for us to have a special process to avoid that happening.
The Inland Revenue has in place a code of practice which ensures that the power that is vested in the board of the Inland Revenue to issue information notices in such circumstances is delegated only to a very few senior officials. The inspector who seeks an information power has a choice between applying to the commissioners as an independent body or applying through the internal processes of the Revenue to one of the senior officials who has the power to issue the information notice only if he is satisfied that the conditions of the 1990 Act are satisfied, which is the key point.
That process achieves the objective that I set out at the beginning, which is that we need to maintain a proper balance between the right of the Inland Revenue to secure the information that it needs to collect tax that is properly due and the proper right of the taxpayer to insist that his interests are safeguarded. I shall consider the point that the right hon. Gentleman made about the ability to go back to examine records of decisions made by the commissioners and by senior officials at the Revenue in these circumstances. But I would not be in favour of the further legislative constraints which the right hon. Gentleman envisages because I am satisfied that the existing arrangements provide proper safeguards and maintain the balance that all in the House want to see.

Mr. Beith: I am grateful to the Financial Secretary for agreeing to look at some of my specific suggestions, some of which could be implemented without following a statutory route. His reply on the main point had the blandness that one associates with Revenue defences of its existing powers. I cannot imagine a situation in which an official of the Revenue conscientiously going about his duties would not believe implicitly that he should not fail to use the most expeditious power—in this case, the power to go to the board of the Inland Revenue rather than to a commissioner. He would believe implicitly that that power was being exercised to avoid loss to the Revenue of tax that it should properly collect—collection that might be prejudiced by any further delay. Inland Revenue officials go through life suffused with confidence that they are acting on that principle. It was some external check on the exercise of that power which I sought and which I still think desirable.

Mr. Dorrell: The right hon. Gentleman should take note of the fact that the senior officials of the Inland Revenue have been satisfied that the test is passed only in roughly 15 to 20 cases a year.

Mr. Beith: I am grateful to the Financial Secretary for that clarification, which is some reassurance. I hope that when he considers my detailed suggestions, he will bear in mind not only the point about unauthorised disclosure, which I hope causes people in the Inland Revenue to think again, but even more my point about the effect on banks and financial institutions of such notices. If the procedure is exercised at all, it could prejudice the conduct of the taxpayer's affairs and it might do so in circumstances in


which the taxpayer is wholly innocent. I hope that the Financial Secretary will bear that point in mind. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New clause 11

ENGLISH WINE SALES (RELIEF OF DUTY) (No. 1)

'. In section 56(1) of the Alcoholic Liquor Act 1979 (Power to regulate making of wine and made-wine provide for charging duty thereon) after paragraph (e) there shall be inserted—

"(f) relieving duty on sales of wine bought directly from vineyards by way of farmgate sales ".'.—[Sir Anthony Grant.]

Brought up. and read the First time.

Sir Anthony Grant: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Mr. Michael Morris): With this it will be convenient to take new clause 12—English wine sales (relief of duty) (No. 2)—

'. In section 56(1) of the Alcoholic Liquor Act 1979 (Power to regulate making of wine and made-wine provide for charging duty thereon) after paragraph (e) there shall be inserted—

"(g) relieving duty from wine sold in vineyards of under 10 hectares of production.".

Sir Anthony Grant: I did not expect to move the new clause, although I wholly support it. I know that some of my hon. Friends will wish to speak at rather greater length than I do, so I shall not detain the House. The new clause is designed to rectify the grossly unfair position in which English vineyards find themselves. I have in my constituency a vineyard called Gamlingay. It produces on a fairly small scale a very nice dry white wine which I commend to hon. Members and to anyone else who likes to participate.
One reason why the vineyard has difficulties is the imposition of duty. The producers sell the wine for £4·50 a bottle, of which approximately £1·20 is duty. If it were sold in France, in Germany, in Luxembourg, in Portugal, in Italy, in Greece or in Spain, the £1·20 would not arise. If our producers were on a level playing field, they could sell the wine for £3·30.
This problem applies not only to that vineyard, but throughout the British wine trade. If an Englishman, a Welshman or a Scotsman buys 10 cases of wine by direct sale from a vineyard in any of those European countries, he would pay no excise duty. If he bought the wine in France, the duty would be about 2p a bottle, which is negligible. He could bring that wine back home to the United Kingdom without having paid any duty. That same person buying at an English or Welsh vineyard, whether Gamlingay or anywhere else, will pay £1·16 or £1·20 a bottle in duty, or as much as £1·92 if the wine is sparkling. That is patently unfair to English vineyards. We talk about a level playing field in Europe. That should apply to everything, and certainly to wine.
It is with absolute confidence that I move the new clause. I believe that Treasury Ministers wish to support British wine as well as to consume it. I believe that they wish to encourage the trade and that they want to put us on the basis that applies in Europe. There is no excuse for discrimination, and the sooner that it is got rid of the better. One way to do that is to accept the new clause with pleasure and with alacrity.

Mr. Andrew Smith: We have heard an enchanting case for the merits of English wine and the prospect of the garden of England being bedecked with new vineyards. I can see the case which is being made, but the new clause amounts either to a plan to subvert EC fiscal legislation—I can well understand why some hon. Members want to do that—or to an invitation to open a Pandora's box of delights concerning the consequential effects on other alcohol taxation.
Unless the Paymaster General tells us to the contrary—I fear that he will not—we will be told that, first of all the new clause runs foul of the agreements on harmonisation, which the Government signed with other European countries, and that if the hon. Member for Cambridgeshire South-West (Sir A. Grant) and his right hon. and hon. Friends wish to have the new lower duty on English-produced wine they will have to have that duty on all wine sold in this country.
Although we suggested in Committee that there was a need for some adjustment in the relative fiscal scales on alcohol taxation, I do not think that anyone suggested reducing the duty on wine in this country to the same level as that of some of our European neighbours.
One of the new clauses would make farm gate sales free of duty; the other would exempt from duty smallholdings smaller than 10 hectares. If the change is applied to wine, why not apply it to beer or spirits? That would invite small-scale duty free sales of home-distilled brews across the country, which may have many attractions but would subvert the basis of charging duty on alcohol and would give rise to a curious distortion in the structure of the industry, as our breweries and distilleries had to get themselves down to the farm gate sales threshold, or the 10 hectares, to take advantage of selling cheap booze.
Although the hon. Gentleman's move to give a special boost to English wine is attractive, I fear that the Paymaster General will have no alternative but to knock it firmly on the head.

Mrs. Jacqui Lait: I have a constituency point that causes me to support the new clause. I also support in general the need to make English vineyards as competitive as possible. Although they make fine wines, they do not compete on price. Much of that is a result of the burden of over-regulation and excise duty.
My point relates entirely to our new clause on farm gate prices. The custom of the vineyards in my part of Sussex had dropped dramatically as a result of the single market. I am not criticising the single market—thank goodness for it—but it is having a definite effect on the vineyards in east Sussex because they are not able to sell wines—as they have done—from the vineyards. We must encourage them to be as competitive as possible vis-a-vis the French vineyards. One has only to spend a brief period on holiday in France and see how much of its product any vineyard will sell to people who turn up at the farm gate to notice what a substantial part of sales it is for many vineyards and how much it contributes to their annual output and hence their profit.
I hope that the Paymaster General will, in a general review of English vineyards and the Customs regime to which they are subject, have a good look at helping to make English vineyards considerably more competitive, particularly at the farm gate.

Mr. Anthony Steen: I am glad to have caught your eye, Mr. Deputy Speaker, over a topic about which I have spoken in the House for the past 15 years. On one occasion—I want to assure the Whips that this will not be such an occasion—I had the Adjournment debate at 10 o'clock. As the business of the House had collapsed, the debate started at 4.30 pm. I had a wonderful three hours—4.30 pm to 7 pm and then from 10 pm to 10.30 pm. My right hon. Friend the Member for Mid-Sussex (Mr. Renton) was engaged in that operation with me and I am pleased to see him here tonight.
I should declare an interest at the outset. I was interested in English wine long before the English Vineyard Association was even thought about, and before we had an English vineyard industry. I now advise the association, which has 400 commercial vineyards in membership. I do not think that many hon. Members realise that there are 400 commercial vineyards in this country. They now produce just short of 25,000 hectolitres of wine a year, some of which is very good.
The trouble is that English wine is out of the reach of the majority of the population, not because it is too difficult to get down in a glass, but because it sells for too much. For most people, the average price of a bottle of wine is £2·99 or less. As the duty on a bottle of English wine is £1·16, one can see that that leaves only £1·83 for a bottle of wine to be produced, marketed and retailed.
I have to declare a second interest, as I have five vineyards in my constituency, and they are very good indeed. I make it a point to visit them to ensure that they are doing what they should be doing and in the way in which we would like it to be done. Devon has 10 vineyards. Somerset has 10 vineyards. Norfolk has only four, but Kent has 170 acres of vines. In the constituency of my right hon. Friend the Member for Mole Valley (Mr. Baker) there is one vineyard of more than 200 acres. The industry is quite big now.
The vineyards in Britain are so far north that they do not yield as much wine as the French or Spanish vineyards. They need help from the Government—

Mr. Andrew Smith: And sunshine.

Mr. Steen: Sunshine, yes, but they can be helped with the duty as well, which is what this issue is about. As my hon. Friend the Member for Cambridgeshire, South-West (Sir A. Grant) quite rightly said, people go to France, not only in charabancs but in large transit vehicles, and they can buy any amount of still and sparkling wine at the French level of duty, which is 2p on the bottle. Much more significantly, if they go to any vineyard in Germany, Italy, Spain or Greece and buy over the gate, which is what the new clause is about, there is no duty at all.
Only one country apart from Britain imposes duty on farm gate sales—France. France imposes a duty of 2p a bottle, which includes VAT. In Britain, the duty is £1·16 a bottle, including VAT. There is thus no incentive for British vineyard owners to show tourists around their vineyards because those who would like to take away a little souvenir bottle of wine discover that there is a large amount of duty to be paid on each bottle. In any other European country apart from France such bottles are excise duty free because they are counted as farm sales for personal use. In France people can take six cases of wine, sparkling or otherwise, from a vineyard and pay only 2p a

bottle duty on it. In Italy, Spain, Portugal, Greece or Germany cases of wine can be bought without paying duty on them—or VAT.
The new clause tries to establish a level vineyard across Europe. I look forward to hearing what the Paymaster General has to say about this. He will probably say that he has not appreciated that there was a problem. We are, after all, talking about a drop in the ocean—the amount of duty involved, to mix a metaphor, is no skin off the Treasury's nose. We are talking about a few pence at most.
The present injustice hurts vineyards in constituencies such as that of my hon. Friend the Member for Hastings and Rye (Mrs. Lait). Many people cross the channel and then drive along the coast. The French, who are understandably rather careless of English wine, drive into vineyards on the Sussex coast and get the shock of their lives when they find that they have to pay £6 for a bottle of wine when they can buy as good wine for a third of the price in France or elsewhere—

Mrs. Lait: Half the price.

Mr. Steen: Quite so.
The new clause is only about farm gate sales and is designed to deal with our Government's discrimination against our own vineyards. The Government have shown clearly that they realise that we must back British goods, and it would help vineyards' commercial viability—they are experiencing difficult times—if they were not charged for farm gate sales to people who buy wine for their own use. Accepting the measure would do such vineyards a great service.
New clause 12 has to do with relief of duty on wines sold from vineyards of under 10 hectares. Most of our 400 commercial vineyards are very small, and it would be marvellous if the Government gave them some relief. There is a precedent for this: the arrangement giving those who produce wine a growers' allowance. I do not know how much they are allowed to consume without paying excise duty, but the point remains the same.
I should have thought that the Government could easily accept this new clause, which would merely give statutory form to the growers' allowance, which is already well established here. Cider producers also enjoy some arrangement allowing them to produce some cider for their own consumption without paying duty on it.
I hope that the Minister appreciates the great interest in the House in English wine. Certainly Conservative Members have a great many vineyards in their constituencies. I look forward to hearing from my hon. Friend the Member for Lincoln (Mr. Carlisle), who runs his own vineyard and who can speak with experience. We also look forward to hearing other hon. Members speak—

Mr. Deputy Speaker (Mr. Michael Morris): Order. Which other Members are called is entirely the choice of the Chair. It is not up to the hon. Member who is speaking.

Mr. Steen: I apologise without reservation, Mr. Deputy Speaker. You, of course, choose the speakers. I was just hinting that you might choose a speaker who happened to own a vineyard.

Mr. Thomas Graham: I am very interested to hear about the hon. Gentleman's knowledge of the wine industry, and I have great sympathy with what he is saying. I only hope that the farm gate price


of whisky can come down too, so that Scotland can enjoy some of the stuff that we produce more cheaply—but I take the hon. Gentleman's point.

Mr. Steen: What the hon. Gentleman says is precisely what I feared—the Minister will say that he cannot give way on wine because other people will start saying that the same should be done for whisky. There may indeed be a case for that. We are anxious to be fair to those who produce our wine. At the moment wine producers operate with both hands tied behind their backs—we seem to be shooting them not only in the foot but in the brain. We are not allowing them to encourage tourists to visit their vineyards and leave with bottles of wine, because we are tripling the amount that they have to pay for it.
Many other Members wish to catch your eye, Mr. Deputy Speaker, so I will conclude. If the Minister gets this one right, he will perform a great service to the nation—and solve a lot of problems.

Mr. Kenneth Carlisle: I begin by declaring an interest. On my farm in Suffolk we have a vineyard, which we planted five years ago. We planted seven acres with 12,000 vines, and we are proud to be part of a new and, we hope, growing industry in the United Kingdom.
I was appalled to hear the hon. Member for Oxford, East (Mr. Smith) talking about cheap booze. That just shows how little he knows about the quality of wines that can be produced in England. The closer a producer is to the geographical extremity of where a fruit can grow, the better that fruit can be. Even though the process is more risky, the longer maturing period enables production of a better quality fruit.
We in the countryside have all been encouraged to diversify, and this is a diversification—not to mention a large investment, which I and many others who have tried to make a living in the countryside have made. The industry needs encouragement: not help, but fair competition.
The industry also creates employment. By the time we have looked after our vines and made and marketed the wine, our little venture employs six people, part or full time. It thus makes a contribution to local prosperity—another point for the Minister to bear in mind.
What we produce is drunk and enjoyed in this country. It substitutes for imports, another laudable achievement. We do not want help; we just want fair competition. My hon. Friend the Member for Hastings and Rye (Mrs. Lait) made a good point about that. At present, vineyards near France suffer greatly from unfair competition owing to the new regulations.

Mr. Steen: Am I right in thinking that my hon. Friend's very small vineyard has been extremely successful of late?

Mr. Carlisle: That remains to be seen. We have entered a competition and I look forward to hearing the result. I am hopeful that we have produced good quality wine.
I hope that the Minister will listen to the arguments. The wine industry is not a big one, but it is developing. It is a serious industry, which is becoming more professional and capable of producing good wine. Given a level playing field, we are confident that we will not only create employment in rural areas but help to cut imports.

Mr. Graham: I did not intend to speak in this debate, but I have a lot of sympathy with what hon. Members have said, for example, about employment, which is very important.
I understand the rules that apply in other parts of Europe, and I agree that we should have a level playing field. I would like to extend it to the social chapter and other areas, but that is not the point.
7.30 pm
For years one tremendous growth industry in Scotland has been the tourist trail to distillers. As many hon. Members are aware, people from all over the world visit the distilleries to take a wee dram and encourage them to buy whisky when they get back home. I understand the point about possible visitors to the new wineries in England, or whatever they are called, and how that could be a new growth industry in tourism.
Last night I was reading a book about the history of Great Britain, starting with the Roman times. There was a paragraph about the wine that was produced in those days. Some of the finest wine in the Roman world was produced in Britain. Apparently, the climate then was slightly better than it is today. I came here from Scotland today, and I know how different the weather is in Scotland. I think that, given the heat down here, not only grapes but bananas can be grown.
On a less frivolous note, I think that what hon. Members have said tonight is very serious. I believe in a level playing field and if wine can be bought duty free at the farm gate in France, Germany, and other countries, that should be possible here.
I genuinely believe, based on historical facts, that we can produce wine as good as that produced by any other country. I would encourage the folk in England, who are lucky enough to have the right weather, to produce the wine. The Government could take a wee lesson and give strong support to the new flourishing art—or rather ancient flourishing art—of wine making in Great Britain.
Like every other hon. Member, I like a wee glass of wine. I do not know a good wine from a bad one. I would follow the advice of the hon. Member for South Hams (Mr. Steen), who seems to have visited all the vineyards. Next time perhaps he would like to take me and my family with him.

Mr. Tim Renton (Mid-Sussex): I am grateful for the support of the hon. Member for Renfrew, West and Inverclyde (Mr. Graham) for the new clauses to which I have put my name. Perhaps we could have a useful twinning association and organise exchange visits to the vineyards in Sussex, Kent or Suffolk and the distilleries that are near the hon. Gentleman's constituency.
I congratulate my hon. Friend the Member for Lincoln (Mr. Carlisle)—and this is an unsolicited comment: I have drunk his wine and it is excellent. I hope that soon the Chairman of the Catering Select Committee will ensure that it is available in the Members' and Strangers' Dining Rooms.
I am happy to support the new clause tabled by my hon. Friend the Member for South Hams (Mr. Steen). I spoke in support of him a number of years ago in the debate to which he referred. In my part of the world, in the county of Sussex, as my hon. Friend the Member for Hastings and


Rye (Mrs. Lait) has already said, vineyards are a growing business. That is a bad pun, but the fact is that tourism has always been immensely important to Sussex.
In recent years, coastal towns such as Hastings, Eastbourne and Brighton have not found it easy to develop their tourist industry. One of the good recent developments is the vineyards, which are increasingly flourishing. Those on the downs in my constituency, inland from the coast, provide a pleasant stopping place during the day for tourists who have been to Brighton, Eastbourne or Hastings. In the afternoon, tourists and their families can go to somewhere like Drusilla's vineyard, where there is a wine shop that sells farm produce as well as English wine.
As my hon. Friend the Member for South Hams has rightly pointed out, there is an anomaly. We want to sell more English farm produce and English wine from our local shops, but the duty on English wine sold at the farm gate is £1·16 a bottle as compared with 2p a bottle in a comparable establishment in France, or nothing at all in other comparable continental establishments. I am sure that my right hon. and good Friend the Paymaster General will say something encouraging about that when he winds up the debate.
Many people in Sussex now take their cars on the ferry over to France from Newhaven, which is next door to Hastings and my constituency. They fill their car boots with dozens and dozens of bottles of wine at the hyper in Dieppe or Pas de Calais. I am a great supporter of the single market, but it is wrong that there should be such a tax differential against our English wine.

Mr. Graham: Is the right hon. Member for Mid-Sussex (Mr. Renton) aware that coach loads of people come down from Scotland every week, or every day, and go over to France to buy wine? They could possibly stop in his area, load up there with wine and save the cost of the petrol necessary to go to France. That would increase the amount of money that would go to the Exchequer.

Mr. Renton: I am delighted that Scotland is so prosperous under a Conservative Government that so many of the hon. Gentleman's constituents are able to take a bus down to fill up with wine in France. I hope that they will also stop at our wine shops in Sussex on the way back.
The tax differential poses a serious problem in Sussex. It is not a frivolous matter. Wine growing is an important young industry and we wish to be able to compete against our continental neighbours on a level vineyard, to use the memorable phrase of my hon. Friend the Member for South Hams.
Sussex has often prided itself on the slogan "Come to Sussex, Sussex by the sea". We would like to add a word in the middle of that. We would like people, when they come, to drink Sussex "Sauvignon" by the sea.

Sir Roger Moate: I should like to endorse everything that my right hon. Friend the Member for Mid-Sussex (Mr. Renton) has said, which applies equally to the vineyards of Kent.
I do not think that it is up to the Chairman of the Catering Select Committee to decide which wines are supplied in our Dining Rooms. All I know is that the excellent Syndale valley wine from my constituency—it is produced close to my home—got on to the wine list. I was

privileged to be a member of the Select Committee when it tasted the wines. It was done without any knowledge of the origin of the wines, but that local wine still got on to the wine list. That is a tribute to my local vineyard and explains why I wish to add my voice to the powerful voices that have been heard today in support of the new clause.

Mr. Steen: I am a member of the Catering Select Committee, and I can inform the House that there are moves afoot to remove English wine from the list. Does my hon. Friend agree that we should resist that with all the enthusiasm that we can muster?

Sir Roger Moate: It would certainly be sad if that happened. The important thing is that consumers should be allowed to make their choice.
There is tremendous international competition to supply the wine drinkers of this country. The English vineyards do not produce volumes of wine and cannot compete easily with the flood of high quality wines that now come into this country. What is of tremendous importance is that they can compete by offering tourists and others the opportunity to visit vineyards that are found in some of the loveliest parts of the countryside.
I urge my right hon. Friend the Paymaster General and his colleagues, when considering the new clause or other proposals, to remember that the fact that people can go into the countryside, visit the vineyards and buy wines there is a tremendous and fast developing asset. That is the key point. It is even more important because of the international competition.
If it is true, as we are informed, that virtually no excise duty is charged at the farm gate in France, and that in most other European countries no tax is imposed, what is the justification for imposing it here? It cannot be because of the revenue raised because the amount collected must be very small. But if we can encourage tourism, diversification, conservation and the improvement of the countryside, I should have thought that my right hon. Friend would accept our overwhelming argument.

The Paymaster General (Sir John Cope): I, too, like English wines. Indeed, I have a constituency interest in the form of a small vineyard at Thornbury castle. I understand what my hon. Friends are trying to achieve in tabling the new clauses, which are designed, as their title suggests, to assist English wines. However, they do not do that. They demonstrate my difficulty in distinguishing between English and other wines under the tax system.
The basic principle of international trade was laid down many years ago, after the war, in article III of the general agreement on tariffs and trade, which says:
the products of the territory of any Contracting Party should not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products.
Since 1947, there has been a lot of case law on that and it covers the matters that we are discussing. Under GATT we are not permitted to distinguish in favour of English as opposed to imported wines. The principle behind it is that no country's tax system should discriminate against imports. My right hon. Friend the Prime Minister was doing his best the other day to achieve improvements in GATT and to lower all sorts of trade barriers.
It is also against article 95 of the treaty of Rome and European law to distinguish between products in that way.

Dr. Godman: Is the Paymaster General confident that his decision to reject the new clauses is compatible with European Community law and hence not challengeable in the European Court of Justice?

Sir John Cope: Yes. I have just quoted the GATT article and mentioned the treaty of Rome and subsequent bits of European law.
In trying to get around the problem of not contravening GATT or the treaty of Rome, my hon. Friends have hit on two ideas, which are incorporated in the new clauses: first, so-called "farm gate sales"; and, secondly, the 10 hectare suggestion.

Mr. Andrew Smith: The Paymaster General has given the answer that I expected about European and international law, but how would he reply to the argument that in other European countries, with the exception of France, those farm gate sales are not charged duty?

Sir John Cope: I should not have given way to the hon. Gentleman and I apologise to the House for having done so because I was just coming to that point.
New clause 11 deals with farm gate sales, or rather vineyard gate sales. There is no difference in any European country between duty at the gate of a vineyard, or within a vineyard, and duty at a supermarket or anywhere else, nor can we introduce a difference under European law. The overall duties on wine imposed by France are less than that imposed by this country, and other European countries impose no duty at all. But that is true across the board; it is no advantage to sell wine at a vineyard, nor can we introduce such an advantage.
It is a question of the difference in excise duties between this country and the other countries named by my hon. Friend the Member for South Hams (Mr. Steen). Our neighbours in other directions, such as Ireland, impose a duty similar to or higher than that imposed by this country. We have often discussed the difference bei ween our excise duties and that of other countries. My hon. Friend discussed a direct function of a much wider argument about excise duties, particularly in the light of the single market.

Mr. Steen: Will my right hon. Friend give way?

Sir John Cope: I should first like to discuss new clause 12, which deals with the 10 hectare limit.

Sir Roger Moate: Before my right hon. Friend leaves that point, may I say that the English Vineyards Association informed most hon. Members that all those other European countries pay no excise duty at the vineyard? Is my right hon. Friend saying that that is simply because they pay no excise duty at all on all wine sales, or is our information wrong?

Sir John Cope: I am saying exactly what my hon. Friend suggests. No excise duty—in some cases, VAT is charged—is payable on wine in the countries named, apart from France which imposes a small amount of excise duty. The rate of excise duty and VAT is exactly the same for sales at vineyards and in supermarkets or anywhere else in France and other European countries.
New clause 12 suggests that we should discriminate on the basis of size, but 10 hectares is far too large for discrimination to be of value. The vast majority of

vineyards throughout the continent are under 10 hectares. I am told that most premier cru Burgundy comes from vineyards of under 3 hectares. Those small vineyards have a small production because they believe in being exclusive to maintain their markets. There are approximately 1.9 million vineyards on the continent, of which only 90,000 measure more than 10 hectares. Therefore, the difference of 10 hectares would be of little use and the same would be true if we changed that figure to 5 hectares or fewer.
Because of the international agreements that 1 mentioned earlier, we would be unable to distinguish between European and English wines in that way. If we said that the produce of small vineyards under 10 hectares or some other size should carry a lower rate of duty, we would have to apply that rule to continental vineyards of the same size, which is the vast majority of them. It is another way of saying that we would reduce the rate of excise duty on wine from almost anywhere in the world. Under GATT, an Australian vineyard of over 100 hectares or a large Californian vineyard would have to be treated in the same way as we treat our most favoured vineyards. We would have to offer the 10 hectare rate even to the most enormous vineyards imaginable, provided that they were overseas. It would discriminate only against large United Kingdom vineyards, not against large vineyards elseshere.
For all those reasons, I do not think that either of the solutions offered by my hon. Friends provides a way forward for us. I believe in free international trade; I also believe in the single market. I recognise the problems caused by the difference in duty rates, which is not confined to wine, but is a wider issue. In the circumstances, it is not possible to use a duty device to benefit English wine. I hope that the trade flourishes. The best way to ensure that is by improving marketing techniques and by extending the ways in which grapes are grown and wine is produced and marketed. We cannot ensure that the trade flourishes by trying to seek duty advantages, which would cause immense difficulties.

Mr. Steen: Is my right hon. Friend aware that the English Vineyards Association is planning to set up stalls in French ports to sell English wine to English travellers returning from France so that they can buy English wine at £1·16 a bottle less than in England? It is crazy for English people to go to France to buy English wine to bring back to this country because it is cheaper in France. If the new clauses are incorrectly drafted, can my right hon. Friend help us to table some helpful new clauses?

Sir John Cope: I do not believe that there is a method of distinguishing, through the duty, in favour of English wine. Perhaps somebody else can find a way, but I have not found a method consistent with GATT or European Community agreements that benefits English wine through the use of duty.
My hon. Friend the Member for South Hams has mentioned a marketing method. I was commending innovative marketing methods, and my hon. Friend has drawn attention to just such a scheme. I recognise the difficulties of which he has spoken, but it is true that English wine or any other wine bought in France for personal consumption and either brought back to this country or drunk in France bears French duty. The important factor is the country in which the wine is


bought; it is not the specific farm gate or place where the wine is bought or where it is produced. I cannot accept the new clauses.

Question put and negatived.

New clause 23

TAXATION OF FISHING VESSEL DECOMMISSIONING GRANT

'(1) Any grant received under the Fishing Vessels (Decommissioning) Scheme 1993, shall be taxed in accordance with subsections (2) to (4) below.

(2) For the purposes of capital gains tax, a sum payable to an individual by virtue of the scheme referred to in subsection (I) above shall not be treated as part of the consideration obtained by him for, or otherwise as accruing to him on, the disposal of any asset.

(3) Where a vessel is scrapped in compliance with grant conditions under a scheme referred to in subsection (1) above, then for all the purposes of capital allowances legislation, and in particular Part II, Chapter II of the Capital Allowances Act 1990, the disposal proceeds to be brought into calculation of the balances adjustment for the purposes of section 24 of the said Act and the value attributable under section 26 of the said Act or otherwise shall be deemed to be nil.

(4) No part of a sum payable by virtue of a scheme referred to in subsection (1) above shall be treated as a trading receipt in the Schedule D Case/computation of profits of the applicant.'.—[Mr. Wallace.]

Brought up, and read the First time.

Mr. James Wallace: I beg to move, That the clause be read a Second time.
I hope that the hon. Member for Hastings and Rye (Mrs. Lait) will remain in the Chamber as she said in last Wednesday's debate on decommissioning that she was very much on the side of the fishermen, and I think that today's debate will give her the opportunity to reaffirm that. Last Wednesday the House approved the decommissioning scheme for 1993–94, which is expected to be the first of three annual decommissioning schemes amounting to £8·4 million per annum.

Mr. Robert Hughes: I am not sure that the order says £8·4 million per annum, but it says £25;million over three years.

Mr. Wallace: I think that the hon. Gentleman is right. I do not think that the order specifies the amount, but the Ministry of Agriculture, Fisheries and Food stated what the amount was likely to be over three years. In the present year the figure is expected to be £8·4 million, and the same in each of the two succeeding years.
An official explanatory leaflet sent to people in the industry stated that, in order to qualify for a decommissioning grant—for which hon. Members on both sides of the House have called for many years—three specific conditions must be met. First, the vessel must be scrapped—permanently broken up or disabled so that it is incapable of going to sea. Secondly, registration in the register of fishing vessels must be cancelled. Thirdly, all valid fishing licences must be surrendered.
The leaflet comments on the tax treatment and states:
Decommissioning grants are taxable in the same way as other grants to the agriculture and fishing industries".
That is an unilluminating statement which begs the question of what prompted the new clause. I hope that the Treasury team will be prepared to accept what I believe to

be the most favourable taxation treatment of decommissioning grants. If that is not acceptable, it would be helpful to those in the industry if the Treasury team could state how decommissioning grants are to be taxed.
The hon. Members for Aberdeen, North (Mr. Hughes), for St. Ives (Mr. Harris) and for Greenock and Port Glasgow (Dr. Godman) have all taken part, over many years, in debates on decommissioning. I think that they, like me, will recall that when we have tried to do the sums, the Fontainebleau agreement has often been introduced into the debate so that it becomes unclear how much the scheme will cost the Treasury. We have always asked what sum will be taken back from the fishermen in tax. I do not recall fisheries Ministers ever giving a clear answer to that question. There is an opportunity this evening for Ministers to clarify the position.
We are asking businessmen to submit tenders and make serious business decisions to scrap their vessels when a key element in the calculation is unclear. I very much hope that tonight we can do something to clarify the position, not least because it was announced last Wednesday that fishermen have until the end of this month to make their submissions for decommissioning grants. Any further information that can be given this evening will be most welcome.

Dr. Godman: Is the hon. Gentleman confident that the scheme will not be hogged by Humberside trawlers in the same way that the previous scheme was so manipulated?

Mr. Wallace: The previous scheme was much criticised, not least by the Public Accounts Committee, and we shall want to watch how the new scheme operates. We do not want money to go only to one port. I shall be ruled out of order if I become too embroiled in a debate on the merits or otherwise of the decommissioning scheme. Many of us would argue that money is not enough, but this evening we are concerned with the tax consequences.
It appears that there are four ways in which the sums can be taxed. First, the receipts could be taxable as trading income. Although nothing in the scheme requires the applicant to cease trading, it would, for the most part, seem reasonably self-evident that if a person scraps his boat, he is unlikely to carry on trading. Such a method will probably not commend itself to the Treasury, particularly, as has been said, if the licences have been returned. Secondly, the receipt could be considered to relate solely to the scrapping of the vessel and accordingly to be taken into account when calculating capital allowances. I suspect that the Treasury may wish to pursue that policy.
Thirdly, the receipt or part of it could be treated as a capital gain. In addition to receiving compensation for the vessel, it could be argued that the value received also includes an element for the surrender of a precious stock licence and the forfeiture of the right to fish with that vessel. I believe that there is case law to support the argument that payments for those items—which amount to goodwill attached to the vessel—could be regarded as capital receipts.
When a grant is allocated, no indication is given as to the amount awarded in respect of the vessel and the amount awarded in respect of the licence. The Ministry of Agriculture, Fisheries and Food and the Scottish Office Agriculture and Fisheries Department may consider that no value is attributable the licence on the basis that nothing was paid for it. I understand that in the north-east


of Scotland the Inland Revenue routinely pursue a policy of attributing value to a licence as a capital asset when a vessel is sold. It is possible that a grant in excess of the vessel's current market value could be treated by the Revenue as capital.
Fourthly, it could be accepted that no tax is to be paid on the grant—a proposal that I commend to the House. I believe that that may have been the case in some previous decommissioning grant schemes, although the status of some of those grants has not been made clear from the commissioners' decisions. Perhaps the Ministers will tell us about the operation of decommissioning grants under previous schemes.
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The new clause has no implications for capital gains or income tax and it has some precedent. I refer the House to the tax treatment of grants under section 27 of the Agriculture Act 1967. That Government grant was to encourage people to reinquish the occupation of uncommercial agricultural units. The parallel between relinquishing such units and the decommissioning of fishing vessels is immediately obvious. Section 249 of the Taxation of Chargeable Gains Act 1992 states:
For the purposes of capital gains tax, a sum payable to an individual by virtue of a scheme under section 27 of the Agriculture Act 1967 (grants for relinquishing occupation of uncommercial agricultural units) shall not be treated as part of the consideration obtained by him for, or otherwise as accruing to him on, the disposal of any asset.
The leaflet from which I quoted said that the method of taxation would be similar to that which applies to other agriculture and fishing grants.
I have given an example of an agricultural grant that is not included for the purposes of capital gains tax. I am sure that the Financial Secretary is aware of other agricultural grants such as those payable under sections 9 and 12 of the Agriculture (Miscellaneous Provisions) Act 1968. Section 9 deals with grants for reorganisation compensation. When dealing with it the then Minister of Agriculture, Fred Peart, said:
This is a difficult matter, and right hon. and hon. Gentlemen opposite are right to ask whether the new payments will be liable to Capital Gains Tax, Income Tax or betterment levy.
Tenants will not be liable for Capital Gains Tax, Income Tax or betterment levy on sums received under Clauses 9 and 12. These sums do not constitute a capital gain or, in the Land Commission's view a realisation of development value, nor do they constitute part of the tenant's taxable income."—[Official Report, 21 February 1968; Vol. 759, c. 473.]
That is another example of agricultural grants not being taken into account for tax purposes.
The new clause seeks to have the grant accepted as non-taxable and to permit the balancing allowance to be granted on the vessel. I do not purport to be an expert in understanding how balancing allowances and balancing charges work. However, they may be of little practical use to taxpayers who have applied for a grant and who have accumulated trading losses in recent years. It would preserve a measure of equity between those who have claimed allowances to augment losses and produce relief against other income and taxpayers who have sought to preserve the tax value of their vessel to set against future taxable balancing charges on a sale.
The share fishermen system operates in Scotland and there are differences throughout Scotland. Unlike parts of the north-east of Scotland, the practice in my constituency for a new person joining a partnership is for continuation

elections to be signed when there are partnership changes. The effect of that is that the new partner takes on a share of the tax written down value of the vessel which reflects previously granted allowances. Subsequent allowances do not reflect the price that he pays for his share. There is always the possibility of that person having to pay tax on a balancing charge in excess of the allowances to which he may have been entitled. That means that there may well be a disincentive to Shetland fishermen applying for grants or at least to gross bids up more than would otherwise be the case.
That brings us to the purpose of the grants. The primary obligation is to reduce capacity to meet multi-annual guidance programme targets. Value for money can be measured in how much capacity can be taken out of the fleet. Many of us would have liked to see more money for decommissioning, but surely the effect of the small amount that has been made available should be maximised. An applicant must include the tax impact of accepting a grant in his calculation. If the effectiveness of the scheme is to be judged on catching capacity taken out, the clear efficiency argument says that if no tax is levied on the receipt there will be lower tenders and, therefore, more bids accepted and more capacity removed from the fleet. There will be greater value for money. I accept that that may not mean so much revenue for the Treasury, but it would be pleasant for once to see the Treasury trying to support the policy of another Department rather than trying to frustrate it.

Dr. Godman: Does the hon. Gentleman agree that one of the developments that we wish to see with a sensible decommissioning scheme in some of our ports is the pulling out of the older vessels so that the fleet can remain fairly modern? Does the new clause encourage that development?

Mr. Wallace: I suspect that it would certainly help. If I recall correctly, it was said in the debate on Wednesday that vessels had to be at least 10 years old.
If a person applying for a tender has to gross up to take account of the tax that he must subsequently pay, fewer vessels will be taken out of the fleet and the relatively small amount of money will not go so far in reducing capacity. Making the grant tax free would be the best contribution towards achieving the object of the exercise. Those who are engaged in the exercise should know where they stand on taxation before making important business decisions.

Mr. Salmond: I should like to be associated with the arguments advanced by the hon. Member for Orkney and Shetland (Mr. Wallace). He has presented the detail of the technical argument and I shall concentrate on why the industry needs some additional tax incentive as part of the decommissioning package. It is highly appropriate that this matter should be debated during consideration of the Finance (No. 2) Bill because many of the decisions, not just for the fishing industry but for all resource-based industries, have been Treasury and Revenue led. That is true for oil, gas and whisky and it is certainly true for fishing.
The Ministry of Agriculture, Fisheries and Food has argued for some time that its original two-year decommissioning scheme was extended to three years with no more money because of pressure from the Treasury, perhaps from the Financial Secretary himself. In a debate on fishing on Wednesday, I quoted an example given to me


by Mr. Hugh Allen, the secretary designate to the Mallaig and North West Fishermens Association, on the precise detail of the proposal by the hon. Member for Orkney and Shetland.
I do not propose to quote the example again because it is available in Hansard. Mr. Allen reasonably set out a case study whereby a fisherman putting in a decommissioning bid of £150,000 on a 15-year-old capital asset that might be worth that amount would be left, after the operation of taxation and other obligations on the decommissioning grant, with a grand total of £4,000. That money would have to be disbursed among four members of his crew.
If that is the current taxation system, it will severely inhibit a successful decommissioning scheme and will lead to one that is designed merely for the convenience of the Treasury. In the past few years, virtually every other fishing fleet in Europe has had access to substantial structural funds of hundreds of millions of ecu. Only the United Kingdom fishing fleet—the fishing fleets of Scotland, Northern Ireland, England and Wales—has not had access to that sort of structural funding. I hope, and it would be a triumph of hope over experience, that when the Financial Secretary replies he will go beyond the narrow Treasury accounting view of what is absolutely convenient and look to the possible success of the decommissioning scheme.
It has not escaped those of us from fishing constituencies that when Ministers argue about the costs of a decommissioning scheme, they always take the costs net of the deduction resulting from the Fontainebleu agreement—for example, even a scheme that is financed 75 per cent. from the European Community would have an impact greater than that on Treasury revenues because of the deduction from the United Kingdom rebate under the Fontainebleu agreement. Yet those same Ministers have always refused to look at the scheme net of taxation and net of the effect on the Treasury of taxation. That argument has been used to produce a very modest decommissioning package for the fishing industry.
Surely, tonight, the Financial Secretary should show that he appreciates that, without some tax concession, the decommissioning scheme could flounder and not have the effect that we all want, which is to bring capacity in the fishing industry into line with catching potential.

Mr. Nicholas Brown: For some years, the Labour party and the fishing industry have urged the Government to introduce a decommissioning scheme. Despite the existence of European Community funds towards the cost of national decommissioning schemes, the Government have repeatedly declared their opposition to such schemes. In February 1992, they announced that £25 million would be made available for a two-year scheme. That scheme is now to last for three years, but the money being made available—which includes EC grant—is unchanged.
That money is quite inadequate for an effective decommissioning programme. Indeed, the House of Lords Select Committee on European Affairs concluded that the £25 million
is not even enough to prevent the fleet from expanding; four or five times that amount is now needed to make up for the lack of a decommissioning scheme in the United Kingdom during the last decade.

Given the wide agreement that the Government are putting forward too little money for decommissioning, the House should not reject the opportunity to lighten the tax burden on decommissioning grants.

Mr. Dorrell: The hon. Member for Orkney and Shetland (Mr. Wallace) accurately said that this evening we are here to discuss the tax treatment of decommissioning grants, not their level or nature or the rules surrounding the scheme. The issue of the tax treatment of payments under the scheme is relatively simple. Tax law provides that those payments should be treated in exactly the same way as any payment that a boat operator would have received had his boat been sold. That is the principle that needs to be applied.
On the sorts of specific tax charges that might arise, the main case is that of fishing boats being sold at less than the full new value paid by the operator. In that case, as with any other capital asset sold by a trading entity, if it is sold for less than the tax written down value, no tax is payable; if it is sold for more than the tax written down value, a balancing charge is made. That is the usual provision in income tax for an individual or in corporation tax for a corporation when a capital asset is sold.
If a boat were sold for less than the new price paid for it by the business, that is the only circumstance in which tax would not be payable. If, however—I suspect that it would be relatively unlikely—a boat were sold for more than its original cost, there would be a balancing item because it would have been sold for more that the written down value. Potentially, a capital gains tax charge would be payable and the normal capital gains tax would apply. In calculating the charge to capital gain, the first consideration would be the new price paid for the boat, and then that would be indexed in accordance with the usual indexation provisions. If the boat were sold for an amount greater than the index-based value, once again—in exactly the same way as is with all other businesses operating in the economy—a capital gains tax charge would be payable.

Dr. Godman: Given the seriousness of the issue and the good sense of the new clause, will the Financial Secretary tell us whether his officials have costed the proposal? It is an important matter. If the hon. Gentleman rejects the new clause, many fishermen may reject the decommissioning scheme.

Mr. Dorrell: Every time a proposal is made to us, we estimate its cost. The cost of the proposal in the new clause is not just the cost that would arise from the benefit to the fishing industry; it is the cost of establishing the precedent of treating Government grants as tax-exempt payments and the distorted incentives that would be built into the system. It would not be rational to build into the system a set of rules to provide that a payment under the decommissioning scheme was tax free, whereas if a boat operator had sold his boat on the open market he would incur a tax liability. That would build in all sorts of distortions, almost all of them undesirable.
In the circumstances surrounding the decommissioning scheme, the main case is not the capital gains tax charge that I described, although that is the law, but the fact that a boat operator is likely to be selling the boat for less than


he paid for it, in which case all we are talking about is a balancing charge. That is familiar to any practising accountant dealing with business accounts.

Mr. Robert Hughes: Having considered the provisions of the decommissioning scheme and the likely price of the vessel if sold, has the Financial Secretary calculated what that would mean for the Treasury? Although he says that most accountants can understand the matter, those who have to make the decision do not necessarily understand it. Will the Treasury issue guidelines in clear language that everyone can understand?

Mr. Dorrell: I understand that the calculation of the balancing charge can sometimes be complex, but it is a well-established concept of tax law. We are not dealing with circumstances that differ from the circumstances of a farmer or any operator of a manufacturing or other trading business.

Mr. Hughes: Has the Minister done that calculation? Given the great importance that everyone in the fishing industry attaches to the decommissioning scheme and the paramount need for the scheme to succeed, will the Treasury issue letters of guidance so that the matter is clearly understood and no one is under any illusions about the exact position?

Mr. Dorrell: I have tried to set out the position in very clear language. It would not be clarified further by issuing what would be represented as a special guidance letter. I have said that, in determining whether a tax charge is payable on the disposal of a boat under the decommissioning scheme, the tax rules that would apply are the general rules that apply to all trading businesses when they sell a capital asset that has been employed in their trade.

Mr. David Harris: Will my hon. Friend give way?

Mr. Dorrell: I shall give way, but I sense that the House wants to get on to the next business.

Mr. Harris: I appreciate the pressure on my hon. Friend, but we are discussing important matters. I want to ask him two questions. First, will he deal with the point fairly raised by the hon. Member for Orkney and Shetland (Mr. Wallace) that an operator selling a boat is not just selling a capital asset; in most cases, he is going out of business? Secondly, will any allowance be made for the considerable cost of scrapping the boat? According to last week's debate, as much as £10,000 might be involved in the disposal of the asset. It is not just a question of a sale to someone else; the seller must then physically carry out the scrapping—or, in most cases, get someone else to do it.

Mr. Dorrell: Obviously, I shall need to take specific advice. As I have conceded to the hon. Member for Aberdeen, North (Mr. Hughes), these issues are not 100 per cent. simple; however, I assume that, if the business received a payment for the disposal of the boat under the decommissioning scheme and then incurred a cost, scrapping would be an allowable expense. It appears that the hon. Gentleman agrees with me. I emphasise, however, that those rules would be applied in the general case of

traders disposing of a capital asset, whether in the course of their trade or on the day on which they closed down—which, sadly, is not unknown in the fishing industry.

Mr. Robert Hughes: Will the Minister give way?

Mr. Dorrell: I will give way once more to the hon. Gentleman; then I will end my speech.

Mr. Hughes: I think that we would all feel reassured if the Minister would state specifically that the Treasury was not banking on obtaining revenue from the scheme.

Mr. Dorrell: I have clearly stated that the amounts involved are extremely small from a tax-revenue point of view. However, if we are talking about establishing a precedent and about a sense of grievance among other traders in precisely similar circumstances, I do not believe that a tax-principle case has been established for departing from the general rules that any fishing boat operator would be able to secure from any practising accountant.

Mr. Wallace: The Minister's reply was very disappointing. He does not dispute any of our arguments; he does not deny that the new clause would be the best way in which to maximise the effect, and the objective, of the decommissioning scheme. He has virtually conceded that the cost to the Revenue would be minimal, possibly nothing. He seems to have based his argument on unwillingness to set a precedent; yet in his speech—in which he refused to give way to me—he singularly failed to address the precedents that I cited in my speech.
Fishermen should know that the tax treatment to which I referred applies to any other trader. As I said, the official leaflet sent to fishermen referred to taxation that applied in the same way to other agricultural and fishing grants; however, I referred to two—if not three—agricultural grants involving no tax treatment. Section 27 of the Agriculture Act 1967 contains a concession that was re-enacted as recently as last year. The precedents are already there; those in the fishing industry, hard pressed as they are, will wonder why on earth they cannot be given a little additional help, at virtually no cost to the Treasury.

Mr. Salmond: No doubt the hon. Gentleman will agree that some hon. Members are better briefed than the Minister in this regard. It is clear that the Minister still does not wish to contradict the interventions that have been made.
The Minister said that small amounts were involved, and that he was not very worried about that aspect. We have been given to understand that Treasury pressure turned the decommissioning scheme into a three-year scheme rather than the two-year scheme that was originally proposed. How do the two propositions sit together?

Mr. Wallace: It is not for me to try to understand that; I do not entirely understand it either. The opportunity to explain exists; the Minister has clarified the law as he sees it. However, we are here to legislate. The House had an opportunity tonight to change the position at no cost to the Treasury, but the Government have not sought to take that opportunity. I believe that the hard-pressed fishing communities on our coasts will notice that.

Dr. Godman: I, too, find the Minister's response disappointing. The hon. Member for Orkney and Shetland (Mr. Wallace) claimed—with considerable confidence—


that such tax-free concessions were not unknown in agriculture; if that is true, his claim that we must not distort the tax system does not hold water. I feel that a general principle is involved. Let us suppose that several fishermen own a vessel, that they are involved in a share arrangement. They may well feel reluctant to give up that vessel for scrapping if they are not to receive such a concession.
The object of such a scheme is to reduce the capacity of the fleet. Without such small concessions, fishermen who—in many instances—have no alternative occupations to turn to in the community may be deeply unwilling to agree to a decommissioning scheme. We shall then be forced to continue with a fleet that is far too big for the stocks on which it relies.
I am extremely disappointed by the Minister's rejection of this sensible and fair-minded proposal.

Question put and negatived.

Clause 42

FUEL AND POWER FOR DOMESTIC OR CHARITY USE

Mr. William Powell: I beg to move amendment No. 7, in page 24, leave out lines 3 to 26.

Mr. Deputy Speaker: With this we may take the following amendments.

No. 22, in page 24, line 6, leave out 'supply:.

No. 23, in page 24, line 6, leave out ', acquisition or importation' and insert 'or acquisition'.

No. 24, in page 24, line 6, leave out ', acquisition'.

No. 2, in page 24, line 7, after 'place', insert—
'(a) in the case of a qualifying use within the meaning of Note (1)(a) of that Schedule (domestic use)'.

No. 1, in page 24, line 7, at end insert
'where the supply, acquisition or importation is for a qualifying use within the meaning of Note (1)(a) of that Schedule (domestic use)'.

No. 3, in page 24, line 7, at end insert
'and
(b) in the case of a qualifying use within the meaning of Note (1)(b) of that Schedule (use by a charity), on or after 1st April 2004'.

No. 25, in page 24, line 7, at end insert
'and
(b) in the case of a qualifying use within the meaning of Note (1)(b) of that Schedule (use by a charity), on or after 1st April 1988.'.

No. 5, in page 24, line 9, at end insert
'as respects supplies of the descriptions specified in Group 7 of Schedule 5 to that Act which are made for a qualifying use within the meaning of Note (1)(a) of that Schedule (domestic use)'.

Mr. Powell: One of the fascinations of Finance Bill Committee and Report stages is the huge variety of subjects that we manage to discuss in a comparatively short time. This afternoon, we have discussed home income plans, English wine, decommissioning of fishing vessels and other matters. Amendment No. 7, however, takes us to the heart of political controversy—a matter raised in the Budget speech of the then Chancellor of the Exchequer, my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont). We discussed the matter fully in Committee, when I was lucky enough to catch the eye of the Chair: some of my speech caused some controversy.
Let me repeat the central assertions that I made then. My right hon. Friend the Member for Kingston upon Thames made a serious error of judgment in advancing this proposal in his Budget speech; moreover—as I said in May—I personally feel ashamed that my party could have introduced such a proposal.
A good many things have happened since May. Perhaps the smallest development is this: I have received hundreds of letters from all over the country about the justice of this proposal. I had received such letters before, of course, but I believe that the debate in May promoted much more discussion in the country. I have engaged in much debate with my right hon. and hon. Friends on the subject, and I am confident in asserting now that Ministers realise that the Budget proposal resulted from a serious error of judgment. I regret that, so far, we have seen no sign that they are prepared to accept that in public.
The truth is that all of us, from time to time, make errors—often serious ones. However, when we realise that we have made such errors—perhaps not at first, but on subsequent examination—the best course is not to persist, but to own up and withdraw what we said initially. I oppose clause 42, which my amendment would strike out lock, stock and barrel. If my amendment is carried, the proposal for VAT to be extended to heating and cooking, fuel and power would go. My right hon. Friend the Paymaster General is, I know, under no illusions whatsoever, but if any hon. Member imagines that at the end of the debate I shall ask for permission to withdraw the amendment. I must point out that I have no such intention.
I hope that my right hon. Friend intends to accept amendment No. 7. I shall have no hesitation in voting for it, just as I voted against clause 42. Although the Finance Bill contains many excellent provisions, I feel so strongly about this issue that it will not be possible for me to support my right hon. Friend in the Division Lobby in favour of giving the Bill a Third Reading if this provision remains in it.
8.30 pm
The reason for my strong opposition to clause 42 concerns social justice. The then Chancellor of the Exchequer was entirely within his rights to come forward in his Budget speech with proposals to raise taxes, if he felt that the public sector borrowing requirement made it necessary for him to include proposals to narrow the PSBR gap over a period of time. I understand that it was his hope to raise more than £2 billion a year when this tax is running at the full rate.
My right hon. Friend the Paymaster General may recall that when he said why the extra £2 billion had to be raised by extending VAT to heating and cooking, my right hon. Friend's answer included no justification whatsoever for it. Every hon. Member can identify other ways of raising £2 billion or more a year. Some of us might even be prepared, in certain circumstances, to allow the VAT base to be extended.
One of the proposals which I very much welcomed in the Budget was that changes should be made to the VAT rules to enable our bloodstock industry to overcome the terrifying fiscal disadvantages with which it was faced. A benefit was therefore given to racehorse owners in the Budget. I am a keen follower of the turf, as many of my right hon. and hon. Friends know. I welcome that provision. When it comes to social justice, however, the


imposition of a £2 billion a year tax increase on heating and cooking while allowing a fiscal advantage to the owners of racehorses, not all of whom are British. is an extraordinary statement of social priorities.
If VAT has to be extended, I should find it much easier to justify extending it to newspapers and magazines. I enjoy reading Country Life, and I enjoy reading the articles by my hon. Friend the Member for Wolverhampton, South-West (M r. Budgen) in Horse and Hound, but it does not seem to me that there is a compelling reason for not imposing VAT on magazines. That would be preferable to imposing VAT on heating and cooking.

Mr. Nicholas Budgen: Does my hon. Friend agree that there is an overwhelming necessity to reduce public borrowing? Somebody has to pay for the enormous losses that were incurred on white Wednesday. My hon. Friend will recollect that Sir Samuel Brittan, as he has now to our great pleasure become, is a great supporter—though perhaps not so great a supporter as Mrs. Hogg—of the exchange rate mechanism. Sir Samuel estimates that the cost to the public finances of white Wednesday is £2·5 billion. We can therefore assume that it is at least that sum and that somebody has got to pay for it. It is not a matter of social justice. It is a matter of a near bankrupt Government trying to find somebody to pay for this appalling mistake of being in the exchange rate mechanism.

Mr. Powell: My hon. Friend makes his point in his own distinctive and interesting way, but he has not taken on board the central point that I am making: that he and the then Chancellor of the Exchequer were entitled to say that taxes should be increased by £2 billion, or whatever the sum is, but that to select heating and cooking as the essential and necessary way of imposing that tax increase was a most bizarre social judgment. I have already pointed out that if it has to be done through VAT, why not do it by means of Horse and Hound or by means of newspapers? If The Sun is so confident today about its market position that it can reduce its price to 20p on a daily basis, it may be able to absorb a 17.5 per cent. VAT imposition and still be able to reduce its price.

Sir Teddy Taylor: Is my hon. Friend not forgetting his European obligations? Does he not recall that under the Single European Act, repeated at Maastricht, we have accepted an obligation to harmonise indirect taxation? Is he not aware that at the ECOFIN meeting that took place as recently as July 1992, we accepted the legal obligation to remove all zero rates by the end of 1996? Although I understand and fully appreciate the important point that my hon. Friend makes, does he not appreciate the Euro-obligation that he has taken on?

Mr. Powell: I was confident that my hon. Friend would raise that point before very long. I had hoped, however, that I might be able to deal with it in such a way as to make it unnecessary for him to intervene. His impatience was such, however—I do not blame him for this, for I have been on my feet for longer than I intended—that he felt that he had to raise the point in the way that he did. The European aspect is one of the most unfortunate and regrettable aspects of the issue. If the Bill contains this appalling clause 42 when it receives Royal Assent. I am afraid that it will be impossible for us to correct the error

that was made by the then Chancellor of the Exchequer when he introduced the proposal in his Budget. This therefore, is our last opportunity to say no to it.

Mr. Budgen: Will my hon. Friend give way?

Mr. Powell: Perhaps my hon. Friend will contain himself for just a moment. I want to make progress, for other right hon. and hon. Members may wish to speak in the debate. There will be a terrifying finality about this proposal, if we allow clause 42 to reach the statute book. That is why we must take this opportunity to say no to it.
I am strongly opposed to the inclusion of clause 42 in the Bill on the ground of social justice. My right hon. Friend the Chancellor of the Exchequer has sought in the past to reassure the House that those who are most vulnerable will be compensated through the social security system for the increase in their tax, which is estimated to be £1 a week in the first full year of its operation and £2 a week in the second year, when the tax will be running at 17·5 per cent.
One of the most striking features of our community, however—every hon. Member has constituents who are in this position—is that many people with modest incomes are not in the social security system. They have modest savings. They may own their own homes. It is not enough to say that the housing benefit system will compensate them, or that they will receive council tax rebates, an argument upon which my right hon. Friend has sought to rely in the past.
Millions and millions of people of modest means have seen their incomes fall substantially in the past few years. Until fairly recently, people derived income from savings at the rate of 15 per cent., greatly to the regret of my hon. Friend the Member for Wolverhampton, South-West. Interest rates then fell to 6 per cent. and, like me, my hon. Friend wants them to come down further. However, people found that their income from their savings also fell. It is not a question of the increase in their incomes failing to meet inflation; it is a question of an absolute decline in income, and yet people have to pay their fuel and water bills and all the other essential bills for living.

Mr. Budgen: To do justice to his argument, which he is making with such force and eloquence, would my hon. Friend like to expand on what he said about the European element being one of the most unfortunate? All of us who have admired him and his tremendous support over the years for the President of the Board of Trade know of his tremendously progressive European idealism. It has generally been thought that the European ideal demanded a common system of taxation in all subordinate countries. I should have thought that my hon. Friend would have been grateful for the surveillance of the European superstate in ordering us to impose value added tax on some of the items that have hitherto passed unnoticed by our European masters. I hope that he is not saying someting inconsistent with the role that he has adopted so forcefully in the past.

Madam Deputy Speaker (Dame Janet Fookes): The hon. Gentleman should be making not a speech but an intervention.

Mr. Powell: My hon. Friend has allowed himself to get into a little rut about this matter in recent months. He has had many opportunities to make that intervention and I shall not hold against him the fact that he has chosen me


as his sacrificial victim. I enjoyed what he had to say about hunting in Horse and Hound much more than his repeating the point about VAT for the 200th time.
I was on the theme of social justice.

Mr. Graham: Up to now, I have thoroughly enjoyed the hon. Gentleman's speech and have agreed wholeheartedly with it. The people that I know who are on low pay have no savings and have never had any savings. Some of my constituents live from day to day. They receive their pay on Thursday or Friday, but use it to repay what they spent in the previous couple of weeks. The Government's proposal to increase VAT will drive these folk into an early grave.

Mr. Powell: The hon. Gentleman has a point, but I do not wish to take it up in great detail because my right hon. Friend will remind the House yet again how the social security system will help the hon. Gentleman's constituents to the most generous extent possible. We can all make up our minds as to how generous "generous" will be in those circumstances.
In dealing with social justice, one must also have regard to those who will undoubtedly be affected by the proposal but who will receive no assistance through the social security system. They will face the increase next year and the following year without the possibility of any reimbursement, compensation or whatever one likes to call it. Many such people have modest incomes; many are elderly, or widows. They feel strongly that the Government for whom many of them voted have let them down badly.
I represent very few people who are affluent and still fewer who are wealthy, but I represent many tens of thousands of people who will be severely affected by the proposal. Some are puzzled and some are deeply angry. Some, of course, have political motives for rejoicing at the large, deep hole that the Conservative party has dug for itself by making this proposal. Others who are and have always been Conservative voters remain puzzled as to how a Conservative Government could possibly make such a proposal which is not only unjust but, even more important, is perceived to be unjust.
You will be relieved to know, Madam Deputy Speaker, that I am drawing my remarks to a close, but I wish to make two further points. When we debated the issue before, there was no question but that the House was influenced by the result of the Newbury by-election and the county council elections. The Government's business managers confidently told us that the worst was behind us. Of course, I and many of my hon. Friends told them that they could not have been more wrong.
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One has only to consider how public opinion has changed in the past two months to realise that the Conservative mavericks—a word that many on the Treasury Bench are keen to use from time to time—are those who persist in pushing this proposal rather than recognising that they were wrong. Unwelcome though it will be to hundreds of my right hon. and hon. Friends, I make this confident assertion: because the Government will not withdraw this proposal, the Conservative party will lose the Christchurch by-election. One could not imagine a constituency—

Mr. Budgen: A very helpful speech.

Mr. Powell: My hon. Friend has a considerable imagination. One could not imagine a constituency with more voters who were likely to be adversely affected by the proposal than Christchurch. It is a misfortune that such a by-election has to be faced, but one of my hon. Friends was heard to use a phrase, which has been adopted—and I apologise for the fact that I am not its author—to the effect that the Government appear to have a death wish. This proposal comes closer to asserting the truth of that than anything else. It is a disgraceful proposal, but I add one gloss.
From time to time, I have mentioned the impact of VAT in the charitable sector as it will affect village halls. It is a subject close to my heart. Village halls will find raising money for voluntary associations—

Mr. Budgen: Now he will say that we are skint as well.

Mr. Powell: Well, they are and I can give my hon. Friend many examples, most of which are run by Conservative supporters who are simply aghast at the extra fund raising that they will have to do because of the proposal.
I have said enough. The proposal should never have been put before the House. Having been made, it should be withdrawn. I hope that my right hon. Friend can yet find the courage to withdraw it. The proposal has done, is doing and, if it remains, will continue to do enormous damage to the Conservative party. It should be, rejected.

Ms Harriet Harman: The House will recognise the truth behind the words of the hon. Member for Corby (Mr. Powell) when he said that the Tories' fortunes in Christchurch will hang on whether the Government press on with the vote on VAT on gas and electricity tonight. He addressed himself to Treasury Ministers. However, he should also address his comments to his fellow Back Benchers because they have an opportunity tonight to do what Government Front Bench Ministers do not have the honesty or courage to do and withdraw the proposal on VAT for gas and electricity.
When it was first announced in the Budget statement on 16 March that the Government planned to put tax of 8 per cent. and then 17·5 per cent. on gas and electricity bills, there was a sense of shock that the Prime Minister had felt able to break his promise not to put VAT on gas and electricity which was so clearly made in the general election campaign.
There was also dismay at how it would hit hardest those who could least afford it. There was incredulity that the Government should seek to justify it as a measure merely to help the environment. All that was nearly four months ago. Since then, it has become clear that the shock and dismay expressed in the House when that announcement was made is felt around the country.
The opposition to VAT on gas and electricity has grown. It was expressed in the Newbury by-election and it was one of the reasons why more than 400 Tory councillors lost their seats in the May county council elections. The Prime Minister said then that he would listen and learn and he brought in a new Chancellor of the Exchequer. However, VAT on gas and electricity is still in this Finance Bill.
The Labour party and the other Opposition parties have been clear and unequivocal in their opposition to this


provision. It is now time for Tory Back Benchers to think again and to use their votes tonight to make their Government think again. I say to Conservative Members, "Remember the elderly in your constituencies. Remember those who are just above income support levels, but who will have to pay this tax in full. Remember what you said in your election address about cutting people's taxes. Listen to what people in this country are saying. Even Conservative councillors are voting against this measure at local level. They will not support it. Heed the warning today of the Social Security Advisory Committee, which has stated that to compensate the poorest, the Government will have to put an extra £400 million into benefits."
Tory Back Benchers must know that if they vote tonight to impose VAT on gas and electricity, they will be whistling in the wind for a compensation scheme. Can we not just hear the Chancellor saying, "Of course I planned a compensation scheme, but I didn't realise that growth would be so low. I didn't realise that the PSBR would carry on getting so big. My hands are tied." Do Tory Back Benchers really think that the Government, already looking for ways to slash the social security budget, will add another £400 million to it—the figure that the SSAC states is necessary just to protect the poorest?

Mr. David Winnick: Does my hon. Friend agree that the winter months are already a nightmare for so many pensioners on income support level and just above it? The cold weather payments are made only if the weather has been freezing for seven consecutive days. Is it not therefore obvious that for so many of our elderly constituents the situation is already a nightmare and tonight's proposal will simply make the situation worse?

Ms Harman: My hon. Friend is absolutely right and that point was reinforced in today's report by the SSAC.
Government Back Benchers may not always feel that they have much power. Indeed, they complain about that. However, public opinion will be firmly on their side if they vote tonight to tell their Government that they have got it wrong and that they must think again.

Mr. Jacques Arnold: As the hon. Lady is speaking so eloquently about manifestos, how would she finance closing I he £50 billion deficit gap and then pay for all the promises made in the Labour party manifesto?

Ms Harman: We tabled 14 new clauses and amendments to the Finance Bill which would have closed tax loopholes and dealt with tax abuse. They would have raised more money than the VAT on gas and electricity. But the Government were not prepared to end tax relief for private health care—they would rather put VAT on gas and electricity. The Government were not prepared to make the privatised water, electricity and gas companies pay corporation tax—they would rather make the elderly and the poor pay tax on their electricity bills.
The simple fact is that the Government are not prepared to close the tax loopholes, which would bring in more income than the proposal would raise, because they would much rather protect the vested interests of their friends who donate to the Tory party and make the pensioners, poor, elderly and disabled pay the bill for the Government's economic incompetence.
The issue of VAT on gas and electricity is a question of the integrity of the Government. The Prime Minister promised in the clearest and most direct terms, using his familiar "honest John" style, that he would not put VAT on gas and electricity. During the election campaign, Labour's then shadow Chief Secretary to the Treasury, my right hon. Friend the Member for Derby, South (Mrs. Beckett), constantly warned that a Tory victory would mean the imposition of VAT on gas and electricity. That was brought to the public's attention through the "VATman" campaign.
Those suggestions were met with denials and injured outrage from Conservatives and with accusations of scaremongering. The Prime Minister was forced to respond and say, in his "honest John" style:
I've made the pledge in the past, I've made it clear. We have no need and no plans to extend the scope of VAT.
That in itself should be enough for Tory Members to vote against VAT on gas and electricity because it breaks such a clear promise.
Even if Conservative Members are not moved to vote against the measure because it breaks an election pledge, they should certainly vote against it because of its effect on the elderly, the poor and the disabled. Pensioners up and down the country have signed our petition against VAT because, as my hon. Friend the Member for Walsall, North (Mr. Winnick) said, they already struggle to pay their gas and electricity bills—[Interruption.]

Madam Deputy Speaker: Order. There are too many seated interventions and a few private conversations.

Ms Harman: For those who need extra heat, such as the housebound and the disabled, fuel bills are a major item of expenditure. Their health is at risk if they have to cut back on the heat that they need. The reason why people have queued to sign our petition against this tax on domestic fuel is that they know that it is unfair. The SSAC report published today bears out their concerns.
The facts are these: the poorest 20 per cent. of households spend more than three times the proportion of their income on fuel as the richest 20 per cent. spend. This tax will hit everyone, but it will hit the poorest hardest. Tory Members must not lull themselves into a false sense of security about compensation for those who will be hit by the tax. The Government have yet to make known what their compensation scheme will be. They have not revealed how much the compensation will be. The only thing that the Government have made clear is that even for the poorest, those on means-tested benefits, there will not be full compensation. Even the poorest will have to pay some of this tax from their benefits.
It is equally clear that those who are not on means-tested benefits will receive no help to pay the tax. I can tell Conservative Members that those with small occupational pensions, who are just above income support level, will be writing to them. They will attend Conservative Members' surgeries and ask how on earth they can manage to pay this tax. There will be 17·5 per cent. on heating and cooking bills for elderly people just above the income support level. Before voting tonight, Tory Members should think about what they will say to those people. They will not be able to sympathise with them because they will have done it to them. It is already clear that the compensation scheme will not reach some of the poorest—those who are entitled to income-related benefits but who' do not claim them.
Of course, it is not a green measure, either. Birmingham city council, when passing a resolution to write to the Chancellor asking him to think again, commented that it is not so much the Government turning green as the poor turning blue. It is important, of course, to reduce energy consumption and carbon dioxide emissions. The way to do that, however, is not to put up fuel prices so that more elderly people die of hypothermia but to have a comprehensive home insulation programme, as Labour has suggested.
VAT on gas and electricity will raise for the Treasury £950 million next year and £2·3 billion the year after, but all the VAT on gas and electricity will pay the unemployment bill for just six months for the south-east alone. The Government cannot turn to pensioners and expect them to rescue public finances from a problem created by the failure of the Government's economic policy. That is not fair and it will not work. VAT on heating is nothing more than an unfair way of trying to finance the growing dole queue. However much pensioners dip into their pockets to pay tax on basic essentials, public finances will simply get worse until the Government sort out the economy.
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The county council elections saw 472 Tory councillors lose their seats. They know that VAT on gas and electricity was one of the reasons why people simply would not vote for them. It is no wonder that the Tory councillors who are left will not support it. A survey that I did of some local councils shows that Tory councillors are voting against VAT on gas and electricity. Some examples are Sandwell borough council, Bedfordshire county council, Dover district council, Bath city council, Darlington borough council, Solihull borough council, Devon county council and Berkshire county council. In all those councils, and in numerous others, Tory councillors have voted against VAT on gas and electricity. In the city of Glasgow, Tory councillor Baillie Young described it as an iniquitous tax, and in North Kesteven a resolution to write to the Chancellor opposing VAT on gas and electricity was seconded by a Tory councillor.
Tomorrow, my hon. Friends and I will present to the Chancellor at No. 11 Downing street a petition containing tens of thousands of signatures. The Government have failed to make a case for VAT on gas and electricity, even among the Tory party's own members. It is not enough, of course, for the Prime Minister to say that he has listened and that he has learnt. It is not enough for him to change the Chancellor, either. The Government must do more than listen to people's concerns. They need to act on them, and they have failed to do that. Tory Back-Bench Members have a choice tonight: they can either stand up for their constituents or follow a discredited Government through the Division Lobby.

Sir Teddy Taylor: I accept absolutely that it would be very unpopular indeed to vote for VAT on gas and electricity. Some people would not vote for us and would condemn us—there is no question of that. However, hon. Members must appreciate when the Government are in an appalling financial situation for all kinds of reasons. The money has to come from somewhere. We would be running away from what I believe is a responsible attitude

to say that it should not come from somewhere. The obvious alternative would be income tax, but, when we have more than 3 million people effectively unemployed, an increase in income tax would almost certainly prevent the recovery for which we hope.
I wish to make four brief points. I advise members of the Labour and Conservative parties that nothing makes me more sick than hearing them talk about the problems of poor people when most of them have supported a policy which is forcing the average working-class family—the average family on low incomes—to spend an extra £20 a week on their food and which has forced the taxpayer to pay hundreds of millions for the dumping and destruction of foodstuffs. It would make me a lot happier if the people who were concerned about the poor and the underprivileged showed some concern for something over which we have some control.
Nothing sickens me more than hearing hon. Members complain bitterly of the consequences of policies that they have voted for. Why the blazes do we have VAT? It is not because it is a good idea. We know that VAT, compared with purchase tax, is cruel to poor people—inevitably it is. It is an across-the-board tax, but it was one of the necessary consequences of membership of the EC which some hon. Members have consistently voted against. Those who voted for the EC have no right to complain about VAT.
I remind hon. Members that it is pure hypocrisy to complain about VAT on gas and electricity when they voted for the Single European Act and for the Maastricht treaty which commits this country absolutely and completely to the harmonising of VAT in so far as is necessary to complete the internal market. That is clearly and precisely laid down.
Will the Government state the consequences of the ECOFIN meeting in July 1992? According to information provided by the Library that backs my own belief, we accepted an obligation—subject only to one definition—to remove our zero rate by the end of 1996. Either that is true or it is not.

Sir John Cope: My hon. Friend has misunderstood the July 1992 agreement. It did not oblige us to abolish our zero rate, as he suggests—on the contrary. We are of course committed to negotiations on moving on to the so-called origin system, hopefully by 31 December 1996. However, our zero rate is entirely preserved in the 1992 agreement, as it was in all previous agreements. Part of the July 1992 agreement was that our standard rate should not fall below 15 per cent. for four years from the time that it was made, but that is a different matter. In any case, that has nothing to do with the position after that.

Sir Teddy Taylor: I am grateful to my right hon. Friend for making that clear, but I assure him—having received clarification of the position in writing from the Library, but I will check this again—that under the July 1992 agreement, although it was accepted that the definition of origin had to be resolved, there was a clear obligation, subject to definition of the origin system, to remove the zero rate by the end of 1996, if not necessarily operate a rate of 17½ per cent.

Mr. Robert Ainsworth: Now that the hon. Gentleman has received the Minister's clarification, and given that he is totally opposed to the House of Commons giving any power away to Europe,


how does he intend to vote tonight? There can be no doubt that, if zero rating is removed tonight, it can never be reintroduced.

Sir Teddy Taylor: The same as I voted before. If one's country is bust and it has a £50 billion deficit, that is partly because of exchange rate mechanism policies for which right hon. and hon. Members voted. I assure the hon. Gentleman that I have voted against every European treaty against three-line Whips. We are effectively handing over a power of this place. There is nothing more hypocritical than for Labour Members to go on platforms and to say, "We'll stop this dreadful tax" when it is clear that, once the decision has been made, they can do nothing.
There is no doubt that we have secured some reasonable concessions. We have received an assurance that every person on benefit will get something on l April next year, before the first bill arrives, and that pensioners will get something because the tax will be taken into account in the cost-of-living index.
As to the remarks of the hon. Member for Peckham (Ms Harman). mine was one of the few constituencies in England that held every one of its Conservative council seats with a good majority. I assure the hon. Lady that Conservative councillors did not lose everywhere.
It is nonsense to pretend that we can stop the march forward of VAT. Under the Single European Act and the Maastricht treaty, we have a clear and precise obligation to achieve harmonisation in so far as that is necessary to compete in the internal market—and that is impossible without total and complete harmonisation. The House is kidding itself. It is sad to hear people complain like mad when we come up against the consequences of our own decisions, in voting for measures wrongly and against the public interest.
Sadly, we have to accept that VAT is here to stay. There is no doubt at all that, effectively, VAT is to be part of our style of life. Unless we do something, and do something quickly, all such debates will be pointless, a waste of time and at best will buy us just a little more time before we are taken over by an unjust and unfair system that will hit the poor of this country. I hope that those who complain about the impact of VAT on the poor will ask themselves how they can justify the accursed, filthy system that puts £20 a week on the average family's food bill and spends hundreds of millions of pounds dumping and destroying food that should go to help the poor and to help those on low incomes.

Mr. Beith: The hon. Member for Southend, East (Sir. T. Taylor) is simply playing rotten in seeking to argue that the Government have been obliged to levy first 8 per cent. and then 17·5 per cent. VAT on fuel as a result of our membership of the European Community or our signature on the Maastricht treaty. If that was so, I am sure that the Government would be rushing to say that it was so. That would at least give them some sort of alibi to use in by-elections, county council elections and everywhere else.
However, as the Minster has already pointed out, that is simply not so. To start with, the Government are under no obligation t o levy 17·5 per cent. VAT at all. That figure arose from the Government's difficulties over the poll tax. It seems especially absurd that pensioners will now face 17·5 per cent. VAT on the standard charge on a gas bill when we had 17·5 per cent. VAT in the first place only as

a consequence of the Government's poll tax chaos. There is no move whatever to advise the Government to levy more than 15 per cent. VAT, for example, or not to have a lower rate—for the first year there will be an 8 per cent. rate. Why not have a lower rate still? There is nothing to prevent the Government from abandoning the whole venture and retaining zero exemption.
Several hon. Members from different standpoints have been right to warn the Government that, if they give up the zero rate tonight, it will be gone for good. If the hon. Member for Southend, East had chosen to make that point, he would have been right. We should place ourselves under a European legal obligation not to reintroduce that rate.
That is what I find so surprising about the Government's supposedly sturdy defence of our standard rate. As the Minister pointed out, at every ministerial meeting the Government have stood up for zero rates and the right to retain those existing rates. Why has the Minister gone to such trouble if he is prepared to throw away the most important rate in terms of its impact on poor families and pensioners? The defence of that rate will seem a vain exercise—a battle fought for little purpose, when the Government have thrown away the use of that zero rate in an area in which it is most important and have done so permanently with no chance of ever reintroducing it.
The zero rate affects not just gas and electricity, but anything bought for use as a domestic fuel: gas, electricity, oil, wood, coal and even peat. Some consumers have relatively little choice over what fuel they use. For example, some consumers do not have access to gas for their domestic heating or cooking and often have to use more expensive means of providing heat for their homes. In parts of my constituency, some do not even have access to electricity.
Many of the families who are most likely to be adversely affected by the measure have no choice in the matter and no help with the energy efficiency of their homes. Any Government who sought to increase energy taxation on environmental grounds ought to ensure that those who have modest incomes and face an increase in fuel bills have access to help with making their home more energy efficient. So many of the people affected are either unable to command the resources to make their home more energy efficient or have no choice about the kind of home in which they live, whether it is a badly insulated council house or a privately rented house, because they have no means of moving into a better and more energy-efficient house. They may have bought their houses in the turbulent housing market of recent years. They now cannot sell those houses, so they cannot exchange them for more energy-efficient houses. They find it impossible to sell their houses at anything like the prices they paid for them. A lot of people are trapped, for one reason or another, in their houses. They do not command the resources to make those houses more energy efficient. They will be hit very hard by the measure, and they will be hit in two stages.
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The Government have already felt the wrath and anger of the people at Newbury and in the county council elections. That has happened before the bills have come in. The 8 per cent. and 17·5 per cent. stages are yet to come. The story will run and run, and it will not end with the Christchurch by-election, unless the policy ends at the time


of that by-election, just as it did not end with the Newbury by-election. The policy will have to be changed if perceptions of the Government are to be changed.
The hon. Member for Corby (Mr. Powell), who moved the amendment so eloquently and in such a determined way, was right to stress that Governments should recognise when they have got it wrong, when they have made a mistake and when their policy is not only impossible to sell, but cannot be justified in its own terms.
If the Government try to justify the measure as an environmental tax, we must ask what changes in behaviour it will lead to. It will not lead to people at the poorest levels saving on energy consumption unless they do so at the risk of their own safety and health. We are talking about people who simply do not have the means with which to provide alternative forms of heat or with which to heat their homes more efficiently. We know that the disabled, the poorest and the unemployed spend a larger proportion of their time at home and that they are more dependent on the heating of their homes for their basic health. We know that families with young children are also in that position.

Ms Mildred Gordon: I agree very much with the right hon. Gentleman's point. However, it is a matter not just of heating, but of lighting. Elderly people whose eyesight is failing need a bright light to enable them to read, even in broad daylight. People whose memories are failing often leave the lights on because they have forgotten to turn them off. People may leave the lights on when they leave home to prevent the house from being robbed because they cannot afford burglar alarms and safety locks. Their energy consumption is much higher than that of people with greater means and with better health.

Mr. Beith: That is an important point which enables me to say how much better it would be if the Government said that they would make a scheme available under which elderly people could have access to low energy-consumption light bulbs at a cost far lower than the present high capital cost. If the Government wish to have an environmental policy based on tax, if would be better to have such a measure so that elderly people could reduce their energy consumption in a way that they are not able to do when they face the cost of £15 for a low energy-consumption bulb as opposed to the cost of ·1 or so for an ordinary bulb. Such an option is not open to them out of their weekly pension.
I was referring to the groups of families who would be adversely affected. I asked what change in behaviour would be made. One thing that will not happen as a result of this form of taxation is that there will not be a switch from polluting and environmentally damaging sources of energy to less polluting or less environmentally damaging sources of energy because it makes no distinction between them. It does not separate wind power or tidal power from coal, from oil or from orimulsion. All fuels along the spectrum of pollution and resource depletion are treated identically under the measure. It is not an environmental tax measure in that sense. It is not an effective environmental tax measure in its focus because it will not lead to behavioural change.
A stronger argument is that behavioural change could be brought about by changes in petrol taxation. Such changes would have to be accompanied by compensating measures. We can see the prospect for behavioural change

by people on reasonably adequate incomes in that area. I cannot see much prospect of change for some of those on modest incomes who will be so adversely affected by this tax.
The Government have not only made a mistake, but have put a lot of fear into the minds of many elderly people and of many families. Of all the issues about which we have received correspondence recently, this is the one about which people are, according to their letters, most filled with fear and anxiety. As the hon. Member for Corby pointed out, that is especially true of those who know that they are just above benefit levels. They do not see how they will meet the costs or how they will cut their energy consumption. They know that they will get no benefit. They already have to put up with the fact that alongside them are people who, for one reason or another, have no savings at all and who therefore get housing benefit and council tax benefit. They see themselves getting none of those benefits and facing extra costs while their income, if based on a little savings capital, is declining.
There is real fear in people's minds over the issue. This is the Government's last chance to put an end to that fear. They show no signs of doing so, so the House must take its last chance of putting an end to that fear and force the Government to drop the proposal.

Mr. Peter Fry: I had not intended to take part in the debate, but such is the extent of public feeling—certainly in my constituency as I know from having spent the morning speaking to a large number of pensioners—that I think that we must express much more vividly the great disillusionment that there is about the proposal.
When I listened to the Budget speech by the previous Chancellor, I was appalled by the suggestion that we should apply VAT to domestic fuel. It is a great pity that the present Chancellor and the Government are now, in effect, laden with the decision of my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont).
The debate is useful in other respects. We must address ourselves to the reason why the large increase in tax, which is what it is, was decided. The answer is simple—the enormous borrowing requirement that the Government face.
Those of us who are honest must accept that there has to be a considerable increase in taxation of one form or another if the Government are to be credible in the eyes of those for whom the strength of sterling and our international financial situation depends. That is why the Chancellor effectively gave a future hostage. He did not increase taxation in the present Budget. He offered a considerable increase in the next year and the year after. In that sense, he was quite clever, because he put off paying the price for trying to keep international confidence in this country.
Unfortunately, clever though it was, as I have made abundantly clear, it was not a clever political choice, hence the speeches by my hon. Friend the Member for Corby (Mr. Powell) and one or two other of my hon. Friends and many Opposition Members.
I find myself in a tremendous dilemma. I do not like VAT on domestic fuel. I have said so publicly and refused to vote on the issue when it was last before the House. On the other hand, I hope that I am a realist and know that the Government have to do something about the enormous borrowing requirement.
What would happen if we voted against the increase and it did not go through? There would be a great hole in the Government's strategy to keep international confidence, because the increase in taxation, which the Bill contains, would be swept away. Therefore, we would put my right hon. Friend the Paymaster General in a situation where he would have to try desperately to fill that gap. That gap could not be filled at a moment's notice.
I do not like the proposals. On the other hand, I do not want the Government's credibility to be totally undermined.

Mr. Beith: If the amendment is carried, surely it is open to the Chancellor to announce tonight that he intends to ensure that the tax hole is filled and that he will announce in the November Budget the precise means by which that is to be done, but to leave no doubt about it. Because the tax does not come into force until next year, he has the opportunity to do that.

Mr. Fry: I take the right hon. Gentleman's point. However, to ask my right hon. and hon. Friends to come forward with an alternative strategy at a moment's notice is asking too much.
Let no one be under any illusion. This VAT application is a tax increase. It is an indirect tax increase but it is a tax increase. Therefore, we should move it a step away from the people who will be hurt most, or at least apply ourselves to the effect of that tax increase on various sectors of the community. I say bluntly that those of us who are on better incomes must accept that tax increase as part of the price of trying to get the Government's borrowing requirement down. Unlike some hon. Members, I also accept that those who are on related benefits will obtain substantial assistance. I am worried about a group that has already been mentioned—those who are just above the level of any income-related benefit, who will suffer tremendously. Already, they have seen their water rates soar out of comprehension. They are the ones who are most anxious.
I hope that I am not one of those people who just mentions a problem and does not offer any solutions. As with any taxation system, it is necessary to soften the effect on those who will be hit hardest and there is a solution that will enable the Government to get out of their dilemma. I do not honestly expect my right hon. Friend the Paymaster General to get up.at the end of the debate and say that he will not proceed with the implementation of VAT on fuel. Indeed, I would rather that he said that he would apply it to newspapers—I do not see why the Government are so terrified of doing that.
However, the Government could say that they will increase benefits to those who are worst off and, above that, they recognise the problem of many people—perhaps 3 million or 4 million—who have small occupational pensions or a few thousand pounds, usually in a building society, and who have seen their net incomes drop dramatically over recent months with the decrease in interest rates.
The Government should look closely in the autumn Budget at increasing the basic retirement pension by rather more than the retail prices index. I do not want that increase to be paid for out of the borrowing requirement. I want us to accept squarely that the only way to pay for it is through a higher contribution from the rest of the working population. I return to a point that I have made

already. We are talking about a tax increase. In all justice, it should be borne by those who are still in a position to earn and are better able to afford such a tax increase.
If my right hon. Friend the Paymaster General will give me the assurance that the Government will look closely at the uprating of the basic retirement pension this autumn, above the RPI, he will get me into the Government's Lobby tonight. Without such a statement, the credibility of the Government and belief in what they say, certainly in my constituency, will be greatly undermined. I am not asking for specific promises about amounts of money. I am asking for consideration of that group of people who proudly say that they are not dependent on state handouts, who have saved a few thousand pounds and who, frankly, feel that they have been kicked in the teeth. We have expected them to support us as a political party, and they have been the bedrock of our society. To say to them and to future generations that the only way that they will avoid such an increase in the future is to fritter away their money so that they are totally dependent on state handouts gives the wrong message.
I understand the Government's dilemma. I have much sympathy over the need to provide funds to cover the borrowing requirement but a message needs to go from the House that we understand the problems and fears of a vulnerable section of our community.

Mrs. Anne Campbell: The hon. Member for Wellingborough (Mr. Fry) referred to the public sector borrowing requirement. The Government should be under no illusion—our constituents see an incompetent Tory Government who have managed to run tip a PSBR of £50 billion and who now expect people on low incomes to pay for that deficit.
Like many other right hon. and hon. Members. I have been inundated with letters from constituents on this issue. I should like to quote from some of those letters which say it all much better than I can. I have questions like, "Why is it that the unskilled, low-waged manual work force bears the brunt of the tax burden to prop up the country?"
Another pensioner said, "I know that we have to set the country back on its feet, but do OAPs have to be hit so hard?" An old person aged 81 years wrote to me saying, "I shall have to cut off my central heating. I will not be able to pay for it. My gas bill last April was £133 and 1 cannot afford any more."
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An Age Concern report has found that 81 per cent. of the elderly people surveyed had a living room temperature below the World Health Organisation recommended level of 20 deg C. More than a third—34 per cent.—do not heat their bedrooms at all. Britain loses more old pensioners in winter than any other European country. That is not because our winters are colder, but because we pay the worst state pension in Europe. The Government are now telling those people who are struggling desperately that they must pay VAT on domestic fuel and power.

Mr. Rupert Allason: The hon. Lady provided statistics alleging that the United Kingdom pays the worst state pension in Europe. Does she agree that those statistics do not add up when contributions are considered or, in other words, when one compares like with like? Does she agree that when contributions are taken into account, the British pension is not the worst by any means? Does


she further agree that, while the German state pension is larger, the German contributions are proportionately greater?

Mrs. Campbell: I know that my constituents who are existing on the ordinary state pension are badly off. Nowhere in Germany, France or any other European country do pensioners live in poverty as they do here.
I was visited recently by a constituent who was, until recently, a loyal Tory voter. He has now retired and manages a small charity trust for the company for which he used to work. He made the point—as did the hon. Member for Wellingborough—that those people who are just above the income support level will be hardest hit by the proposal. My constituent cited cases of pensioners who have written to him in utter desperation. Those included one who was already reduced to heating one room only. He said, "To meet current fuel bills and repairs to our boiler, my wife and I are now going short of food."
My constituent also said, "I have already had two old folk on the phone, both saying that they hope that they will die before the 17·5 per cent. increase comes in, as they fear the cold so much." It is a terrible indictment of the sort of society in which we are living when we cannot afford, as a society, to tell pensioners that they need not pay any more money.
Last week I visited three residential homes run by Mencap for the mentally and physically handicapped. Many of the residents of those homes have severely restricted mobility, and need consistently high levels to be maintained. The added burden of VAT on that vital provision cannot be accommodated by current care budgets that are already suffering at the hands of the Government.
I do not intend to detain the House for long. Much of what I wanted to say has been said by hon. Members on both sides. I would like briefly to draw attention to the position of Lupus sufferers. Lupus is a chronic, non-infectious, auto-immune disease, mainly affecting young women of child-bearing age—between 13 and 45. The symptoms of Lupus are many and varied, but one symptom is called Raynaud's Disease. Sufferers are, in general, extremely sensitive to changes in temperature. Those can affect the blood flow to fingers and toes and can cause constant pain in severe cases. There is great concern about the imposition of VAT on domestic fuel costs in view of the fact that, for those sufferers, heat is not a luxury but an essential commodity.
When these sufferers experience an attack due to the change of temperature, cumulative tissue damage may occur, and that in turn may lead to more severe forms of the condition—ulceration, gangrene and, at the very worst, an amputation may be required. It is important to minimise the number of attacks and to minimise the tissue damage and the resulting intense pain.
The problem is that many of these sufferers are not eligible for state benefits and will not benefit from any increase in them introduced as a result of the imposition of VAT. So the promised increase in benefits to counter balance the VAT increase will have no positive effect.
In the course of proceedings on this Bill we have been able to present Ministers with many ways in which they can close tax loopholes and raise the £2 billion which they say this measure will generate. They can raise the money

in a much more humane way. I join Conservative Members who have promised the Government that if they carry this measure through they will almost certainly lose Christchurch and any other by-elections that take place in the next few months and years.
I sincerely hope that the Government will rethink their proposal, and that enough Conservative Members vote against it to defeat it.

Mr. Nicholas Winterton: I rise to support my hon. Friend the Member for Corby (Mr. Powell), who moved the amendment in his eloquent style. I endorse most of what he said, even though he and I find ourselves in different camps when it comes to Europe and the Maastricht treaty—fortunately, we are not debating that tonight, and I hope that you will ensure that we do not, Madam Deputy Speaker.
I commend the right hon. Member for Berwick-upon-Tweed (Mr. Beith). His speech was made in a non-partisan way; he merely presented the issues, and I am delighted to support what he said—not only because his family used to live in my constituency for many years but because he went to the famous King's school in Macclesfield.
I deeply regret the fact that the Government have gone back on many election pledges by widening the scope of VAT. I never thought to see a Conservative Government and Chancellor doing that. Over two years we are to introduce a tax at 17·5 per cent. on two essentials of life: heat and light. They are, of course, particularly essential to the vulnerable groups mentioned by other hon. Members this evening.
What is so grossly unfair is that this charge will be levied not only on the consumption of gas and electricity but on the standing charges for them. Many of us believe that those charges are already grotesque and appear to have been mainly used to increase the salaries of the directors, chairmen and senior executives of the public utilities that have been privatised.
I endorse the speech made by my hon. Friend the Member for Corby. This tax is perceived to be socially unjust, and it is quite wrong that the most vulnerable people should have to pay so much for mistakes made by the Government.
I believe that it would be far better, far more honest and far more honourable—we are all honourable men and women here—if Ministers were prepared to increase the standard rate of income tax to raise the necessary money: £950 million in the first year, and £2·3 billion in a full year when the rate is 17·5 per cent. I do not believe that we should seek to mislead people by saying that we are not increasing taxation. As has been said by my hon. Friend the Member for Wellingborough (Mr. Fry), we are increasing taxation, so why mess about as to whether it is indirect or direct?
The people of this country believe that the fairest and most appropriate way in which to help the Government balance their books and reduce the Budget deficit is to increase direct taxation. In November, I would, at a stroke, increase the 25 per cent. standard rate of tax to 28 per cent. for two years only. I would also increase the top rate of tax from 40 per cent. to 45 per cent. The people would then see that those who are in the best position and most able to pay would be making the major contribution to reducing the Budget deficit, which is causing the Government so much difficulty.
As my hon. Friends have rightly said, the present proposals are perceived to be grossly unfair and impinge mainly and most heavily on the most vulnerable groups—the elderly, those on low incomes and, as has been said by my hon. Friend the Member for Wellingborough, those who are just outside any form of state income-related benefit. My hon. Friend the Member for Wellingborough should note, however, that I do not think that giving an assurance that the old age pension will be increased by an amount above the retail prices index adequately reflects the concern that is felt in this country, nor will it provide the money that those in the vulnerable groups need for a reasonable quality of life.
My own women's association gave me 100 per cent. support in a motion that it submitted to the Conservative women's conference recently. It was not selected, of course—I do not think that the association expected that—but the grave and serious opposition to what the Government seek to do was reflected at national level on the agenda of the women's conference of the Conservative party. The one mistake that my women's association made was to ask the Government—if they were insistent on implementing the measure—whether, after the Budget deficit had been reduced, they were prepared to remove it. As has been said by my hon. Friends, however, once the zero-rated exemption has gone, we can never restore it.
It is wrong to extend a tax to the essentials of life such as heat and light. My hon. Friend the Member for Bury, North (Mr. Burt), the Parliamentary Under-Secretary of State for Social Security, is extremely assiduous and hard working and has had considerable responsibility for social security matters. He knows that the Government: have given no guarantee that the position of those on benefit, pensioners and those just above any form of income-related benefit will be fully protected by any steps that the Government may announce before the implementation of the VAT extension to heat and light.
The right hon. Member for Berwick-upon-Tweed is absolutely right; to make the excuse that this is being done as our contribution to improve the environment and reduce carbon dioxide emissions is an absolute nonsense. It will have absolutely no effect. It is extraordinary that no proposal has been made to introduce an ambitious and helpful home insulation scheme to go with the Government's announcement.
I will not make as many unhelpful remarks as my hon. Friend the Member for Corby about the political implications of what the Government are doing. All I can say to my right hon. and hon. Friends on the Front Bench is that I have not had a single letter from any person in favour of extending VAT to heat and light. I have received hundreds of letters from my constituents—my area is relatively well off compared to those of some of my hon. Friends and Opposition Members—who perceive the measure to be unacceptable.
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The Government would lose nothing by saying tonight, as the Prime Minister has said, "We have listened to the people of this country." He should go on to say, "Clearly, they are hostile and overwhelmingly opposed to what we seek to do. We will come back to the House in November"—as is absolutely possible—"with a proposal to plug the gap in the Budget to ensure that the Government's overall economic strategy is not undermined."
Like those of my hon. Friends who belong to the No Turning Back group, I want us to bring our budget into balance, but I do not want to do it on the hacks of the vulnerable, the elderly, the low-paid, the handicapped, the mentally ill and all those groups of people who will suffer as a result of that misguided measure. We have heard little about the impact that the measure will have on private residential establishments that cater for some of those people. They will have to increase their fees to meet that additional charge.
If my right hon. Friends want a further Conservative Government after the next election, they must listen not only to the people of this country but to Conservative Back Benchers because the measure is fundamentally flawed and extremely damaging and will hurt the most vulnerable groups in our society. My right hon. Friend the Paymaster General would receive immense support from the House—perhaps more than he thinks from Conservative Back Benchers—if he were prepared to think again about that measure.
Why are we so against increasing direct taxation? Why must we dishonestly say that we are not increasing taxation, when we are widening the scope of VAT and increasing contributions under national insurance, which is also something that we said we would never do? What is so sacrosanct about direct taxation? If we raised it for only two years, we would have to seek a renewal if the budget was not in balance. What is wrong with that?
The Under-Secretary of State for Social Security—my hon. Friend the Member for Bury, North—and I were with a group of members of the Confederation of British Industry on Friday. Surprisingly, many of those at that meeting would have been perfectly happy to see the Government increase the standard and 40 per cent. taxation rates to get the country's economy right.
I am honoured to have represented my constituency for 22 years in this place—rather longer than the overwhelming majority of the Cabinet—[Interruption.] When Disraeli was heckled during his maiden speech in the House, he said:
There will come a time when you will listen to me.
There will come a time when my right hon. Friends will listen to me.

Mr. Graham: I have never heard such a tremendous fighting speech from the hon. Member for Macclesfield (Mr. Winterton) and I am delighted to speak after him.
Time and again I have asked the Minister to tell us the price of a bottle of paraffin or a hundredweight of coal and how much it costs to heat a house, and he has never attempted to answer. How can the Government understand the suffering that they are inflicting on the good people of Britain—the people whom they expect to vote for them? Yet they put VAT on fuel. The people of this country know that the weather in Scotland is different from that in England. In recent months, the south has been sweltering in the heat, but in Scotland there have been various weather conditions. When I left home this morning, my wife had the fire on. I wonder how many elderly and disabled people in Scotland can afford to put on a fire in the morning—not very many.
One of the reasons for the fighting fury in Scotland—and, I am sure, in the rest of the country—is the Government's disgraceful commitment to putting 17·5 per cent. value added tax on fuel. One hon. Gentleman said that he would support the Government as they would


otherwise lack credibility. That is nonsense—we have been elected to fight and campaign for our constituents, and to ensure that the Government run the country for the good of our constituents. We should not support bad government.

Mr. Fry: Will the hon. Gentleman give way?

Mr. Graham: I shall give way in a minute.
Hon. Members are here to represent our people on a burning issue. Many of our constituents will not be able to light fires or light their homes in winter when they are dark. Back Benchers on both sides of the House have a golden opportunity to join together to ensure that VAT of 17·5 per cent. is not imposed.
I have deliberately spoken to many of my pensioners about the issue. The Government have got away with plenty of things, but one thing that they will not get away with is the imposition of VAT on fuel. I have spoken to people on low pay and I remember the days when I was on low pay. I remember the difficulties that I faced in heating my house to ensure that my two sons went to school warm in the morning and came home at night to warm food and a warm house.
I had difficulties paying my fuel bills in Scotland. Some weeks, 25 per cent. of my income went straight into heating the house. Many hon. Members present tonight do not know the cost involved. I had to heat the house with paraffin as I could not afford the high cost of electricity. Ultimately, I had to use calor gas because paraffin was not good for my two children, who suffered from asthma.
Does the House realise that there are thousands and thousands of people who do not heat their houses as they would wish? They do not heat them to maintain their health because of the Government's mismanagement of the economy. When I look at the Government Front Bench team I do not see an ounce of compassion. I heard the hon. Member for Corby (Mr. Powell) make an impassioned plea, which I totally supported. I also heard the hon. Member for Macclesfield make a speech which was absolutely bang on the button.
Tonight, the Government have a chance to show some heart, but I am afraid that they will be hard-headed, and show a hard, cold face. The caring face of Government will be shown tonight as Government Members march through the Lobby and inflict damage and suffering on the elderly, unemployed, disabled and those on low pay. The Government do not have the guts to say that the previous Chancellor was wrong. They bumped him out into the cold, but at least he will be able to heat his house. Our folk, our constituents in Scotland and other regions will not be able to heat their houses.
Will the Minister find out the price of paraffin, calor gas and a bag of coal? Will he find out what it costs to heat a house in Glasgow, and what that costs a family in which one person is on low pay and the rest are unemployed? There is no benefit good enough for the dignity of mankind in Britain. We are all entitled to the dignity of having a warm house and hot food, and seeing in the dark. Let us give our folk their dignity, not impose VAT on fuel. I hope that many Conservative Back Benchers will support us tonight.

Mr.Geoffrey Dickens: I am one of the Conservative Members who

has a reputation for being loyal to the Conservative party. That means that when I speak out against my Government it carries extra currency. When I first came to the House, I voted for tougher immigration controls and tougher trade union reforms, and in their little grimy books, which they are writing in at the moment, the Whips wrote one word about me—unpromotable. They were right, but by the time I have finished my speech perhaps they will wish that they had promoted me.
I support my hon. Friend the Member for Corby (Mr. Powell). Never in my experience have I seen such a politically naive, unfair and unjust measure. It is common knowledge that we have to find some money. The world recession has gone on for longer than all the industrialised nations had thought it would, but there is no disgrace in telling people the truth about that. If that causes us to break an election promise, it is not the end of the world, as long as we explain carefully to people why we are breaking that promise.
I guess that the Government thought that it was clever footwork to put VAT on fuel because they were not raising VAT but introducing another category. It was not a rise in direct tax and therefore did not place the Government in conflict with the electorate, as the Government did not have to say that they had broken a promise. If it is necesary to break a promise to straighten out the nation, the Government must do so, but people must be told why that is being done and it must be done fairly. To do it unfairly is inexcusable.
How will this affect young families? A young man who is a rising executive in his company may not have much money but may earn too much to qualify for income support. If he has a young wife and children, the washing machine will be on the go all day. Heating will also be on all day because the house must be kept warm for young children. The family is too rich to get benefit but too poor to pay ever-increasing costs, some of which we are inflicting on it.
Hon. Members have mentioned the elderly and people in other categories who are too rich to get benefit but too poor to pay ever-increasing costs. Many pensioners have had to take early retirement because of unemployment in their companies and have not even reached the state pension age. Out of the small amount of interest on their savings, which has been decreasing, they will have to pay extra fuel costs. That is inexcusable.
As hon. Members have said, there are other ways to raise money, and if hon. Members want me to list them, I shall do so. My hon. Friend the Member for Wellingborough (Mr. Fry) listed about four or five different ways and my hon. Friend the Member for Macclesfield (Mr. Winterton) suggested a basic tax rate of 28 per cent. and a higher rate of 45 per cent. That would be fairer than what the Government propose. VAT could be increased to 20 per cent. rather than nibbling at fuel costs. Many options are available to the Treasury, but I shall not detain the House by listing them further.
It is strange that in Tokyo we were able to offer President Yeltsin millions of pounds to help his country, but when we need money for our own country we cannot find it. We were able to find it to send an armada to the Falklands and we can send military aid to Bosnia and take part in the Gulf war, so there must be a contingency fund somewhere. We cannot be absolutely broke, because we seem to be able to find money from some source. Where is the money and how deep is the contingency fund purse?
I want the Government to withdraw the stupidity of VAT on fuel. It is unfair and unjust and we shall rue the day that we impose it. I did not go to university and I know that it sometimes shows. I did not rush out to advise Ministers with two firsts from university. I attended the university of life. The university of life does one thing above all else—it makes one streetwise. If only Ministers and civil servants had consulted a few streetwise Back Benchers, they would never have pursued such stupidity.

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Mrs. Margaret Ewing: I support the amendment moved by the hon. Member for Corby (Mr. Powell). I am sure that he is aware that, as shown in the Order Paper last Thursday, I tabled an amendment along similar lines to his. I know that we share a deep concern about the issues at stake.
I am aware that there is no requirement for the House to vote at 10 o'clock. When hon. Memberrs want to register their views on an important issue, they should be prepared to stay in the building to enable all hon. Members to do so. In that way, our constituents can judge how we feel about the issue.
It is almost with a sense of despair that yet again i speak about fuel poverty. I have been in the House since 1974, albeit with an interim absence. In the 1970s, I raised the question of fuel poverty and the problems faced by many of the elderly, the disabled and those on fixed incomes. I watched the actions of the Labour party when it was in government and the actions of the Conservative party when it was in opposition. I do not say that with any sense of immodesty.
My concern is that the House has never objectively addressed the issue of fuel poverty, especially against the background of the wealth from North sea oil, Scottish oil and gas and all the natural resources throughout the United Kingdom. The House has never drawn up a strategy or a policy—[Interrruption]—to ensure that no one has to face the realities that were so eloquently described—[Interruption)—by the hon. Member for Renfrew, West and Inverclyde (Mr. Graham)—

Madam Deputy Speaker: Order. I am sorry to interrupt the hon. Lady, but there is now a general buzz of conversation such that it is not easy to hear her. That is extremely discourteous and I ask the House to be very much quieter.

Mrs. Ewing: I suspect, Madam Deputy Speaker, that hon. Members from the two main parties assumed that there would be a vote at 10'clock. They have come here specifically for the vote, rather than to listen to the arguments.
There has been a great deal of argument about the political implications of imposing VAT on domestic fuels. I have registered my view on that during previous debates on the Bill. It may be that fear has been struck in the hearts of many people, from Basildon to Brechin, from Newbury to New Pitsligo, from Christchurch to Cullen. The vote tonight should not be about votes for political parties: we are voting on something that will affect the lives of individuals, people who are citizens of our constituencies and of the United Kingdom. I urge all hon. Members to search their consciences before casting their votes.
The hon. Member for Renfrew, West and Inverclyde spoke about the need to define the cost of fuel for each and

every individual. We have already done a great deal of research on that. I do not believe that it is an issue only of wealth; it is also an issue of climate. We must recognise the differentials in that regard between the north and the south of the United Kingdom; indeed, I have introduced several Bills to that effect.
Let me remind Ministers that it costs 36 per cent. more to heat a house in Dundee, Edinburgh or Glasgow than it costs to heat a house in Bristol. It costs 38 per cent. more to heat a house in Inverness and Stornoway, 48 per cent. more in Aberdeen, 60 per cent. more in Lerwick and 74 per cent. more in Braemar. Those statistics were produced by the Department of Energy, and they underpin the need to review our attitude to ensuring that those on low or fixed incomes—for instance, the disabled—can fulfil their requirement for a decent, warm house.
A dry, warm house is not a luxury; it is the right of every individual. Far too many of our people wake up to find condensation running down their windows—or, in winter, ice on the insides of their windows—and fungus creeping up their walls. This is not a commitment to Rio; it is a penalisation of the most vulnerable members of society. If the Government really want to meet the environmental requirements made at Rio, they should consider releasing the capital receipts of local authorities to ensure that they can implement the energy efficiency needs of our housing stock. They should ensure that all new build meets the requirements necessary to ensure decent insulation and heat conservation.
I believe that, if the Government proceed with their proposals, they will not only lose votes—possibly—in by-elections here and there; they will have on their conscience the lives and, ultimately, the deaths of many people in our society.

Mr. Alan Howarth: My purpose in tabling amendments Nos. 1, 2, 3 and 5—which are grouped with amendment No. 7—is much more limited than that of my hon. Friends the Members for Corby (Mr. Powell) and for Macclesfield (Mr. Winterton). Indeed, I differ from them. I accept, reluctantly—how could I do so other than reluctantly—the Government's main argument for the extension of VAT to domestic fuel and power; I recognise the need to reduce the public sector borrowing requirement and, indeed, the need to reduce global warming. My aim is to exclude charities from the requirement to pay VAT on fuel and power, and I have tabled a number of amendments that seek to approach that objective from different angles. I do not mind which my hon. Friend the Minister chooses, as long as he chooses one of them.
The Government have promised to protect the needy from the burden of the additional charge on heating and cooking. My right hon. Friend the former Chancellor of the Exchequer announced that in his Budget statement, and the Government were right to make the commitment. I simply ask the Government to be consistent. They intend to help the needy directly; correspondingly, they should help the charities whose purpose is to help the needy.
I am talking of charities whose role is supportive of the state, or complementary to the state; charities, for example, that care for the elderly and the disabled. These are among the areas of growth in social expenditure where the Government are particularly worried about how they are to finance meeting the need that they foresee. Charities operate in these fields sensitively, in two senses. They


target need more accurately than state agencies commonly do; and they approach their human dealings in a sensitive manner. They are also cost effective, tending to have lower overheads than public agencies, and they mobilise voluntary energies.
In his excellent Mais lecture, my right hon. Friend the Secretary of State for Social Security set out some of the principles that he thought should govern the reform of social security. One was the principle that policy must harness popular energies. Charitable activity certainly does that, on an enormous scale.

Madam Deputy Speaker: Order. I remind those hon. Members who have just come into the Chamber that it is grossly discourteous to chatter away while somebody else is seeking to make points that are important to him.

Mr. Howarth: Those who give money to charities may ask why, if the Chancellor is to take away money from charities by extending the burden of VAT on them, they should give money. Those who work for charities may ask why they should work for charities if the Government make their task harder by increasing their costs.
I shall give one or two examples of what the costs to individual charities will be as a result of extending VAT to fuel and power. Methodist Homes for the Aged will have to pay an extra £143,000. Barnardos will have to pay an extra £122,500. The National Society for the Prevention of Cruelty to Children will have to pay another £31,000. The Royal National Institute for the Blind will have to pay another £126,500. Mencap will pay an extra £170,800. The National Children's Home will pay another £100,000. Those are significant additional burdens on charities that are acting in partnership with the state to provide very basic social support.
The Cancer Relief Macmillan Fund gives a third of its grants to sick people who face additional fuel costs. Applications to that fund and to other grant-giving charities will undoubtedly increase as people find it more difficult to cope with the increase in the cost of domestic fuel and power.
The Government have said that they want the needy to be helped. Why, then, do they intend to make it harder for charities to help those in need?
The Government increasingly want charities to do things. The problem with VAT is that it penalises charities that do indeed do things. The inequalities of the VAT system hit charities discriminatorily. It is a mistake to extend its scope. It would be much better to remove the existing £300 million burden of irrecoverable VAT that charities already carry. If the Government feel unable to exempt charities from having to pay VAT on their non-business activities, they should provide a VAT refund scheme.
It is important for the Government to think carefully about how to achieve a better balance in their fiscal policy relating to charities between relief on giving and relief on expenditure. I received a letter today from Mr. Peter Berresford of Mencap, who said:
Assuming we receive tax relief on all our voluntary income, we actually receive tax relief on 7 per cent. of our activities!
I can quote figures that have been supplied by other charities that face heavy VAT burdens on the activities which they undertake—activities which, surely, we all

want them to undertake. The Royal National Institute for the Blind incurs £1·2 million of irrecoverable VAT. In its last financial year, the National Society for the Prevention of Cruelty to Children had to pay £615,000 of irrecoverable VAT. Methodist Homes for the Aged currently pays £405,000 worth of irrecoverable VAT.
The Government have not put forward strong arguments to support their case for extending the imposition of VAT on charities. They argue that charities should make their contribution to reducing global warming, but the charities most affected by this change would not be able to do so. They are already energy efficient. Those for whom they care—the old, the ill and the disabled—need more heating.
Charities have a duty of care to look after those who depend upon them. The Government require charities to do so—for example, under the Registered Homes Act 1984. The Act requires charities running residential homes to maintain temperatures at a certain level. It is inappropriate to tax charities for complying with the Government's legal requirements. It is also discriminatory to do so, because of their inability to recover VAT.
The Government argue that the extension of gift aid and payroll giving will provide compensation, but it will not compensate the same charities, nor will it do so to a sufficient extent. The National Children's Home tells me that at best it would gain £10,000 from the extension of gift aid and payroll giving that is provided for in the Finance Bill. At the same time it will have to pay an additional £100,000 in VAT on fuel and power.
The Government also argue that charities already pay VAT on their business use, but it is not a good idea to establish further precedents. If we remove this zero rate, for which the Government fought, we may well create a precedent and encourage the attitude that, if charities pay VAT on fuel and power, why should they not pay it on their new buildings or building alterations for disabled people?
It is estimated that the Exchequer will gain £27 million from this extension of VAT to charities, but the net benefit to public funds will be very much less because, on a reasonable estimate, about three quarters of that will come back as a charge on public funds through increased fees charged by charities. It is disproportionate to abolish the zero rate for such a token gain to the Exchequer. I therefore ask my right hon. Friend to exclude charities from this extension of VAT. If he feels unable to do so, I ask him to make a positive commitment to consider constructively the possibility of introducing a VAT refund scheme in the autumn Budget.

Sir John Cope: We have today covered much of the ground that we covered in our debates on the Budget, on Second Reading and in Committee of the whole House when we debated the clause stand part motion to which the amendment relates. Very little that is new has been said today, and I do not suppose that my response will change much.
My hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) mentioned charities in which I know he takes a great interest. Other hon. Members, too, expressed concern about their charities under this legislation, especially those involved in residential care. I acknowledge at once that charities provide a valuable service and I pay


tribute to them. Charities in general provide many useful services in the community, which is why we already grant them large tax reliefs—especially, as my hon. Friend said, on charitable giving. Tax reliefs have been increased elsewhere in the Bill. I regret, however, that we cannot exempt charities from the national need to conserve energy; nor can they be immune from the problems of national financing.
Besides, charities are not alone in providing residential care. The amendments would disadvantage commercial residential care., which also provides a valuable service. They would also disadvantage the elderly at home, thus cutting across the care in the community policy. I would not want to introduce a measure that would encourage people to put the elderly into homes. In addition, because of the way in which the amendments are drafted, they would make some difficult and probably unintended distinctions between individual charities that provide residential care. Of course, we keep all such matters under careful review and will be reviewing taxation of charities again, as we always do, before the next Budget.

Mrs. Ewing: rose—

Sir John Cope: I must make some progress in dealing with the general points which the hon. Lady and others have raised.
The House knows very well, because we have said it over and over again in the debates to which I have referred and elsewhere, that the clause was included for two reasons: first, to help to deal with the public sector financial deficit; and, secondly, to contribute towards meeting our Rio commitment. Both reasons remain valid and important.
Contrary to what has been said this evening, the clause is not the only way in which we are dealing with either of the problems, but it will make a contribution in both cases. From the Budget speech onwards, we have made it clear that we would make additional help available, through the benefits system, for those hardest hit. My right hon. Friend the Secretary of State will announce more details in the usual uprating statement in the autumn. That will allow increases to be put into effect when the VAT increases also come into effect.
There have been arguments, which I have observed today and on previous occasions, about whether we should tackle the public sector deficit by restraint on public spending or through tax increases. The fact is that we are tackling it by both methods and both are necessary given the scale of the deficit.
My hon. Friend the Member for Macclesfield (Mr. Winterton) seemed to think that we were somehow denying that this was a tax increase. We are not: it is a tax increase and we accept that. We have been asked to choose between direct taxes and indirect taxes. We are increasing both in the Bill. My hon. Friend the Member for Macclesfield quoted Disraeli's maiden speech. My hon. Friend should note that Disraeli said those words in his maiden speech and not after he had been a Member for a very long time—longer than I have been here, and I have been a Member for only 19 years.
My hon. Friend the Member for Corby (Mr. Powell), who moved the amendment, said that it was a matter of judgment and responsibility. I accept that. My right hon. Friends and I have not claimed that this is the only option. Of course it is riot. My hon. Friend the Member for Corby

seemed to think that it is, but, as I have made clear, we had to choose and this is the way in which we have decided to make a contribution in both cases about which I have spoken. During this debate, we have been urged constantly by my hon. Friends, and even those who have spoken against the amendment, to tackle the deficit and that is what we are doing. That involves difficult decisions. We realise that those decisions are difficult; nevertheless, they are necessary.
We have been reminded again this evening that it has become a sackable offence on the Labour party Front Bench to say anything in favour of a tax on fuel. Lord Desai discovered that the other day. Perhaps his real offence was embarrassing the Leader of the Opposition during Question Time. That is, after all, quite a recent position for the Opposition. The Opposition's policy document of May 1990 entitled "Looking to the Future" contains the heading "Value Added Tax". They promised to keep many of the zero rates, but they did not promise to keep this one. That document states:
We will also use the tax system… to help protect the environment.
Exactly so, and that is what we are doing. The present leader of the Labour party made environmental taxes part of his leadership platform.
The Liberal Democrats have, in their time, also spoken in favour of taxes of this kind. In one of their policy documents in August 1991, they said:
The UK is unusual amongst EC members in not applying even standard rates of VAT on domestic fuels.
Of course the Liberal Democrats say different things now—that is politics. We must take the difficult decisions and that is what we have done. That is why I commend clause 42 to the House.

Mr. William Powell: This has been, to say the least, a lively debate. None of us who listened to it will forget the way in which my hon. Friend the Member for Macclesfield (Mr. Winterton) stimulated the hon. Member for Renfrew, West and Inverclyde (Mr. Graham) in his contribution.
I want to make two very brief points. First, there is absolutely no doubt that the Conservative party and our leader gave an unequivocal promise to the electorate during the election campaign that we would not extend VAT in this way. I also gave that promise to my constituents. I meant it and I propose to keep it.
Secondly, this debate is not about whether there should be a tax rise. It is quite obvious that, in the proposals which were made, the Government accepted that there would be a tax rise. The question is, what is the priority in imposing that tax rise? I opened the debate by saying that the chief criticism which could be made was that it was socially extremely harmful. I have to say that, after all the hours of discussion on different occasions, I remain absolutely perplexed as to how anybody could select this as the socially most just way of raising tax. It is the most bizarre decision that could be made. I know that, although many of my right hon. and hon. Friends will join the Government in the Division Lobby, they, too, are thoroughly perplexed as to how this selection came to be made.
I note also that, although my right hon. Friend the Paymaster General justified the rise in tax—I do not criticise him for that, and I praise the way in which he faced that matter absolutely directly—he made no attempt whatsoever to justify to the House why this method had been selected, in terms of where the increase should fall,


and not some other option. Quite obviously, every hon. Member could put forward two dozen options that would raise the same amount of tax and would be perceived by our constituents to be socially far more justifiable than the option that is presently before the House.
As my right hon. Friend said, we have not made much progress. The House has debated this matter fully. I simply ask right hon. and hon. Members to join me in the Division Lobby in supporting the amendment.

Question put, That the amendment be made:—

The House divided: Ayes 299, Noes 307.

Division No. 327]
[10.25 pm


AYES


Abbott, Ms Diane
Cousins, Jim


Adams, Mrs Irene
Cox, Tom


Ainger, Nick
Cryer, Bob


Ainsworth, Robert (Cov'try NE)
Cummings, John


Allen, Graham
Cunliffe, Lawrence


Alton, David
Cunningham, Jim (Covy SE)


Anderson, Donald (Swansea E)
Cunningham, Rt Hon Dr John


Anderson, Ms Janet (Ros'dale)
Dafis, Cynog


Armstrong, Hilary
Dalyell, Tam


Ashdown, Rt Hon Paddy
Darling, Alistair


Ashton, Joe
Davidson, Ian


Austin-Walker, John
Davies, Bryan (Oldham C'tral)


Banks, Tony (Newham NW)
Davies, Rt Hon Denzil (Llanelli)


Barnes, Harry
Davies, Ron (Caerphilly)


Barron, Kevin
Davis, Terry (B'ham, H'dge H'I)


Battle, John
Denham, John


Bayley, Hugh
Dewar, Donald


Beckett, Rt Hon Margaret
Dickens, Geoffrey


Beggs, Roy
Dixon, Don


Beith, Rt Hon A. J.
Dobson, Frank


Bell, Stuart
Donohoe, Brian H.


Benn, Rt Hon Tony
Dowd, Jim


Bennett, Andrew F.
Dunnachie, Jimmy


Benton, Joe
Dun woody, Mrs Gwyneth


Bermingham, Gerald
Eagle, Ms Angela


Berry, Dr. Roger
Eastham, Ken


Betts, Clive
Enright, Derek


Blair, Tony
Etherington, Bill


Boateng, Paul
Evans, John (St Helens N)


Boyce, Jimmy
Ewing, Mrs Margaret


Boyes, Roland
Fatchett, Derek


Bradley, Keith
Field, Frank (Birkenhead)


Bray, Dr Jeremy
Fisher, Mark


Brown, Gordon (Dunfermline E)
Flynn, Paul


Brown, N. (N'c'tle upon Tyne E)
Forsythe, Clifford (Antrim S)


Bruce, Malcolm (Gordon)
Foster, Rt Hon Derek


Burden, Richard
Foster, Don (Bath)


Byers, Stephen
Foulkes, George


Caborn, Richard
Fraser, John


Callaghan, Jim
Fyfe, Maria


Campbell, Mrs Anne (C'bridge)
Galbraith, Sam


Campbell, Menzies (Fife NE)
Galloway, George


Campbell, Ronnie (Blyth V)
Gapes, Mike


Campbell-Savours, D. N.
Garrett, John


Canavan, Dennis
George, Bruce


Cann, Jamie
Gerrard, Neil


Chisholm, Malcolm
Gilbert, Rt Hon Dr John


Clapham, Michael
Godman, Dr Norman A.


Clark, Dr David (South Shields)
Godsiff, Roger


Clarke, Eric (Midlothian)
Golding, Mrs Llin


Clarke, Tom (Monklands W)
Gordon, Mildred


Clelland, David
Gould, Bryan


Clwyd, Mrs Ann
Graham, Thomas


Coffey, Ann
Grant, Bernie (Tottenham)


Cohen, Harry
Griffiths, Nigel (Edinburgh S)


Connarty, Michael
Griffiths, Win (Bridgend)


Cook, Frank (Stockton N)
Grocott, Bruce


Cook, Robin (Livingston)
Gunnell, John


Corbett, Robin
Hain, Peter


Corbyn, Jeremy
Hall, Mike


Corston, Ms Jean
Hanson, David





Hardy, Peter
Morris, Rt Hon A. (Wy'nshawe)


Harman, Ms Harriet
Morris, Estelle (B'ham Yardley)


Harvey, Nick
Morris, Rt Hon J. (Aberavon)


Hattersley, Rt Hon Roy
Mowlam, Marjorie


Henderson, Doug
Mudie, George


Heppell, John
Mullin, Chris


Hill, Keith (Streatham)
Murphy, Paul


Hinchliffe, David
Oakes, Rt Hon Gordon


Hoey, Kate
O'Brien, Michael (N W'kshire)


Hogg, Norman (Cumbernauld)
O'Brien, William (Normanton)


Home Robertson, John
O'Hara, Edward


Hood, Jimmy
Olner, William


Hoon, Geoffrey
O'Neill, Martin


Howarth, George (Knowsley N)
Orme, Rt Hon Stanley


Howells, Dr. Kim (Pontypridd)
Paisley, Rev Ian


Hoyle, Doug
Patchett, Terry


Hughes, Kevin (Doncaster N)
Pendry, Tom


Hughes, Robert (Aberdeen N)
Pickthall, Colin


Hughes, Roy (Newport E)
Pike, Peter L.


Hughes, Simon (Southwark)
Pope, Greg


Hutton, John
Powell, Ray (Ogmore)


Illsley, Eric
Powell, William (Corby)


Ingram, Adam
Prentice, Ms Bridget (Lew'm E)


Jackson, Glenda (H'stead)
Prentice, Gordon (Pendle)


Jackson, Helen (Shef'ld, H)
Prescott, John


Jamieson, David
Primarolo, Dawn


Janner, Greville
Purchase, Ken


Johnston, Sir Russell
Quin, Ms Joyce


Jones, Barry (Alyn and D'side)
Radice, Giles


Jones, Jon Owen (Cardiff C)
Randall, Stuart


Jones, Lynne (B'ham S O)
Raynsford, Nick


Jones, Martyn (Clwyd, SW)
Redmond, Martin


Jones, Nigel (Cheltenham)
Reid, Dr John


Jowell, Tessa
Rendel, David


Kaufman, Rt Hon Gerald
Richardson, Jo


Keen, Alan
Robertson, George (Hamilton)


Kennedy, Charles (Ross,Camp;S)
Robinson, Geoffrey (Co'try NW)


Kennedy, Jane (Lpool Brdgn)
Robinson, Peter (Belfast E)


Khabra, Piara S.
Roche, Mrs. Barbara


Kilfedder, Sir James
Rogers, Allan


Kilfoyle, Peter
Rooker, Jeff


Kinnock, Rt Hon Neil (Islwyn)
Rooney, Terry


Kirkwood, Archy
Ross, Ernie (Dundee W)


Leighton, Ron
Ross, William (E Londonderry)


Lestor, Joan (Eccles)
Rowlands, Ted


Lewis, Terry
Ruddock, Joan


Litherland, Robert
Salmond, Alex


Livingstone, Ken
Sedgemore, Brian


Lloyd, Tony (Stretford)
Sheerman, Barry


Llwyd, Elfyn
Sheldon, Rt Hon Robert


Loyden, Eddie
Shore, Rt Hon Peter


Lynne, Ms Liz
Short, Clare


McAllion, John
Simpson, Alan


McAvoy, Thomas
Skinner, Dennis


McCartney, Ian
Smith, Andrew (Oxford E)


Macdonald, Calum
Smith, C. (Isl'ton S amp; F'sbury)


McKelvey, William
Smith, Rt Hon John (M'kl'ds E)


McLeish, Henry
Smith, Llew (Blaenau Gwent)


McMaster, Gordon
Smyth, Rev Martin (Belfast S)


McNamara, Kevin
Snape, Peter


Madden, Max
Soley, Clive


Mahon, Alice
Spearing, Nigel


Mandelson, Peter
Steel, Rt Hon Sir David


Marek, Dr John
Steinberg, Gerry


Marshall, David (Shettleston)
Stevenson, George


Marshall, Jim (Leicester, S)
Stott, Roger


Martlew, Eric
Strang, Dr. Gavin


Maxton, John
Straw, Jack


Meacher, Michael
Taylor, Mrs Ann (Dewsbury)


Meale, Alan
Taylor, Rt Hon John D. (Strgfd)


Michael, Alun
Taylor, Matthew (Truro)


Michie, Bill (Sheffield Heeley)
Thompson, Jack (Wansbeck)


Michie, Mrs Ray (Argyll Bute)
Tipping, Paddy


Milburn, Alan
Trimble, David


Miller, Andrew
Turner, Dennis


Mitchell, Austin (Gt Grimsby)
Tyler, Paul


Molyneaux, Rt Hon James
Vaz, Keith


Moonie, Dr Lewis
Walker, A. Cecil (Belfast N)


Morgan, Rhodri
Walker, Rt Hon Sir Harold


Morley, Elliot
Wallace, James






Walley, Joan
Winterton, Nicholas (Macc'f'ld)


Wardell, Gareth (Gower)
Wise, Audrey


Wareing, Robert N
Worthington, Tony


Watson, Mike
Wray, Jimmy


Welsh, Andrew
Wright, Dr Tony


Wicks, Malcolm
Young, David (Bolton SE)


Wigley, Dafydd



Williams, Rt Hon Alan (Sw'n W)
Tellers for the Ayes:


Williams, Alan W (Carmarthen)
Mr. John Spellar and Mr. Andrew Mackinlay.


Wilson, Brian



Winnick, David





NOES


Ainsworth, Peter (East Surrey)
Currie, Mrs Edwina (S D'by'ire)


Aitken, Jonathan
Curry, David (Skipton amp; Ripon)


Alexander, Richard
Davies, Quentin (Stamford)


Alison, Rt Hon Michael (Selby)
Davis, David (Boothferry)


Allason, Rupert (Torbay)
Day, Stephen


Amess, David
Deva, Nirj Joseph


Ancram, Michael
Devlin, Tim


Arbuthnot, James
Dicks, Terry


Arnold, Jacques (Gravesham)
Dorrell, Stephen


Arnold, Sir Thomas (Hazel Grv)
Douglas-Hamilton, Lord James


Ashby, David
Dover, Den


Aspinwall, Jack
Duncan, Alan


Atkinson, David (Bour'mouth E)
Duncan-Smith, Iain


Atkinson, Peter (Hexham)
Dunn, Bob


Baker, Rt Hon K. (Mole Valley)
Durant, Sir Anthony


Baker, Nicholas (Dorset North)
Dykes, Hugh


Baldry, Tony
Eggar, Tim


Banks, Matthew (Southport)
Elletson, Harold


Banks, Robert (Harrogate)
Evans, David (Welwyn Hatfield)


Bates, Michael
Evans, Jonathan (Brecon)


Batiste, Spencer
Evans, Nigel (Ribble Valley)


Bellingham, Henry
Evans, Roger (Monmouth)


Bendall, Vivian
Evennett, David


Beresford, Sir Paul
Faber, David


Blackburn, Dr John G.
Fabricant, Michael


Body, Sir Richard
Fenner, Dame Peggy


Bonsor, Sir Nicholas
Field, Barry (Isle of Wight)


Booth, Hartley
Fishburn, Dudley


Boswell, Tim
Forman, Nigel


Bottomley, Peter (Eltham)
Forsyth, Michael (Stirling)


Bottomley, Rt Hon Virginia
Forth, Eric


Bowden, Andrew
Fowler, Rt Hon Sir Norman


Bowis, John
Fox, Dr Liam (Woodspring)


Boyson, Rt Hon Sir Rhodes
Fox, Sir Marcus (Shipley)


Brandreth, Gyles
Freeman, Rt Hon Roger


Brazier, Julian
French, Douglas


Bright, Graham
Gale, Roger


Brooke, Rt Hon Peter
Gallie, Phil


Brown, M. (Brigg amp; Cl'thorpes)
Gardiner, Sir George


Browning, Mrs. Angela
Garnier, Edward


Bruce, Ian (S Dorset)
Gill, Christopher


Budgen, Nicholas
Gillan, Cheryl


Burns, Simon
Goodlad, Rt Hon Alastair


Burt, Alistair
Goodson-Wickes, Dr Charles


Butcher, John
Gorman, Mrs Teresa


Butler, Peter
Gorst, John


Butterfill, John
Grant, Sir Anthony (Cambs SW)


Carlisle, John (Luton North)
Greenway, Harry (Ealing N)


Carlisle, Kenneth (Lincoln)
Greenway, John (Ryedale)


Carrington, Matthew
Griffiths, Peter (Portsmouth, N)


Carttiss, Michael
Grylls, Sir Michael


Cash, William
Hague, William


Channon, Rt Hon Paul
Hamilton, Rt Hon Archie (Epsom)


Churchill, Mr
Hamilton, Neil (Tatton)


Clappison, James
Hampson, Dr Keith


Clark, Dr Michael (Rochford)
Hanley, Jeremy


Clarke, Rt Hon Kenneth (Ruclif)
Hannam, Sir John


Clifton-Brown, Geoffrey
Hargreaves, Andrew 

Coe, Sebastian
Harris, David


Colvin, Michael
Haselhurst, Alan


Congdon, David
Hawkins, Nick


Conway, Derek
Hawksley, Warren


Coombs, Anthony (Wyre For'st)
Hayes, Jerry


Coombs, Simon (Swindon)
Heald, Oliver


Cope, Rt Hon Sir John
Heath, Rt Hon Sir Edward


Couchman, James
Heathcoat-Amory, David


Cran, James
Hendry, Charles





Hicks, Robert
Ottaway, Richard


Higgins, Rt Hon Sir Terence L.
Page, Richard


Hill, James (Southampton Test)
Paice, James


Hogg, Rt Hon Douglas (G'tham)
Patnick, Irvine


Horam, John
Pattie, Rt Hon Sir Geoffrey


Hordern, Rt Hon Sir Peter
Pawsey, James


Howard, Rt Hon Michael
Peacock, Mrs Elizabeth


Howarth, Alan (Strat'rd-on-A)
Pickles, Eric


Howell, Rt Hon David (G'dford)
Porter, Barry (Wirral S)


Howell, Sir Ralph (N Norfolk)
Porter, David (Waveney)


Hughes Robert G. (Harrow W)
Portillo, Rt Hon Michael


Hunt, Rt Hon David (Wirral W)
Rathbone, Tim


Hunt, Sir John (Ravensbourne)
Redwood, Rt Hon John


Hunter, Andrew
Renton, Rt Hon Tim


Hurd, Rt Hon Douglas
Richards, Rod


Jack, Michael
Riddick, Graham


Jackson, Robert (Wantage)
Rifkind, Rt Hon. Malcolm


Jenkin, Bernard
Robathan, Andrew


Jessel, Toby
Roberts, Rt Hon Sir Wyn


Johnson Smith, Sir Geoffrey
Robertson, Raymond (Ab'd'n S)


Jones, Gwilym (Cardiff N)
Robinson, Mark (Somerton)


Jones, Robert B. (W Hertfdshr)
Roe, Mrs Marion (Broxbourne)

Jopling, Rt Hon Michael
Rowe, Andrew (Mid Kent)


Kellett-Bowman, Dame Elaine
Rumbold, Rt Hon Dame Angela


Key, Robert
Ryder, Rt Hon Richard


King, Rt Hon Tom
Sackville, Tom


Kirkhope, Timothy
Sainsbury, Rt Hon Tim


Knapman, Roger
Scott, Rt Hon Nicholas


Knight, Mrs Angela (Erewash)
Shaw, David (Dover)


Knight, Greg (Derby N)
Shaw, Sir Giles (Pudsey)


Knight, Dame Jill (Bir'm E'st'n)
Shephard, Rt Hon Gillian


Kynoch, George (Kincardine)
Shepherd, Colin (Hereford)


Lait, Mrs Jacqui
Shepherd, Richard (Aldridge)


Lang, Rt Hon Ian
Shersby, Michael


Lawrence, Sir Ivan
Sims, Roger


Legg, Barry
Skeet, Sir Trevor


Leigh, Edward
Smith, Sir Dudley (Warwick)


Lennox-Boyd, Mark
Smith, Tim (Beaconsfield)


Lester, Jim (Broxtowe)
Speed, Sir Keith


Lidington, David
Spencer, Sir Derek


Lightbown, David
Spicer, Sir James (W Dorset)


Lilley, Rt Hon Peter
Spicer, Michael (S Worcs)


Lloyd, Peter (Fareham)
Spink, Dr Robert


Luff, Peter
Spring, Richard


Lyell, Rt Hon Sir Nicholas
Sproat, Iain


MacGregor, Rt Hon John
Squire, Robin (Hornchurch)


MacKay, Andrew
Stanley, Rt Hon Sir John


Maclean, David
Steen, Anthony


McLoughlin, Patrick
Stephen, Michael


McNair-Wilson, Sir Patrick
Stern, Michael


Madel, David
Stewart, Allan


Maitland, Lady Olga
Streeter, Gary


Major, Rt Hon John
Sumberg, David


Malone, Gerald
Sweeney, Walter


Mans, Keith
Sykes, John


Marland, Paul
Tapsell, Sir Peter


Marshall, John (Hendon S)
Taylor, Ian (Esher)


Marshall, Sir Michael (Arundel)
Taylor, John M. (Solihull)


Martin, David (Portsmouth S)
Taylor, Sir Teddy (Southend, E)


Mates, Michael
Temple-Morris, Peter


Mawhinney, Dr Brian
Thomason, Roy


Mellor, Rt Hon David
Thompson, Sir Donald (C'er V)


Merchant, Piers
Thompson, Patrick (Norwich N)


Milligan, Stephen
Thornton, Sir Malcolm


Mills, Iain
Thurnham, Peter


Mitchell, Sir David (Hants NW)
Townend, John (Bridlington)


Moate, Sir Roger
Townsend, Cyril D. (Bexl'yh'th)


Monro, Sir Hector
Tracey, Richard


Montgomery, Sir Fergus
Tredinnick, David


Moss, Malcolm
Trend, Michael


Needham, Richard
Trotter, Neville


Nelson, Anthony
Twinn, Dr Ian


Neubert, Sir Michael
Vaughan, Sir Gerard


Newton, Rt Hon Tony
Viggers, Peter


Nicholls, Patrick
Waldegrave, Rt Hon William


Nicholson, David (Taunton)
Walden, George


Nicholson, Emma (Devon West)
Waller, Gary


Norris, Steve
Ward, John


Onslow, Rt Hon Sir Cranley
Wardle, Charles (Bexhill)


Oppenheim, Phillip
Waterson, Nigel






Watts, John
Wolfson, Mark


Wells, Bowen
Wood, Timothy


Whitney, Ray Yeo, Tim


Whittingdale, John
Young, Rt Hon Sir George


Widdecombe, Ann



Wiggin, Sir Jerry
Tellers for the Noes:


Wilkinson, John
Mr. Sydney Chapman and Mr. Andrew Mitchell.


Willetts, David



Wilshire, David

Question accordingly negatived.

Clause 78

RATE OF ADVANCE CORPORATION TAX AND TAX CREDITS

Mr. Nicholas Brown: I beg to move amendment No. 26, in page 54, line 38, at end insert—

'( 1A) The amendment made by subsection (1) above shall not have effect as respects so much of the amount or value of any distribution as is payable to a section 505 body which, in accordance with regulations made by the Board, supplies a certifcate to the company making the distribution to the effect that it is such a body.

(1B) A body is a section 505 body if it is—
(a) a charity (as defined in section 506(1) of the Taxes Act 1988);
(b) a body mentioned in section 507 of that Act (heritage bodies); or
(c) an Association of a description specified in section 508 of that Act (scientific research organisations).

(1C) The Board may by regulations make such incidential consequential, transitional provision as they consider necessary or expedient in connection with subsections (1A) and (1B) above (including provision amending any provision of the Taxes Acts).'.

Mr. Deputy Speaker: (Mr. Michael Morris): With this, it will be convenient to take the following amendments: No. 8, in page 54, line 41, at end insert—

'(2A) The amendment made by subsection (1) above shall not have effect as respects so much of the amount or value of any distribution as is payable to a section 505 body which, in accordance with regulations made by the Board, supplies a certificate to the company making the distribution to the effect that it is such a body.

(2B) A body is a section 505 body if it is—
(a) a charity (as defined in section 506(1) of the Taxes Act 1988);
(b) a body mentioned in section 507 of that Act (heritage bodies); or
(c) an Association of a description specified in section 508 of that Act (scientific research organisations).

(2C) The Board may by regulations make such incidental, consequential, transitional and supplemental provision as they consider necessary or expedient in connection with subsections (2A) and (2B) above (including provision amending any provision of the Taxes Acts).'.

No. 9, in page 57, line 24, [Clause 80], leave out from beginning to end of line 25 on page 58.

Mr. Brown: It is appropriate that, having discussed one tax rise, albeit an overt tax rise, we now proceed to discuss a substantial concealed tax rise, and one which bears in a most unfair way on charities—[Interruption.]

Mr. Deputy Speaker: Order. I should be grateful if hon. Members would either listen to the hon. Gentleman speaking to the amendment or retire quietly from the Chamber.

Mr. Brown: Conservative Members, whose consciences must already be pricking them, should stay and listen to my exposition of what is intended to be a relieving measure

—[Interruption.] They shout and jeer. suggesting that they are not sympathetic to the cruel and unfair position in which charities find themselves.
Those Tory Members who served on the Committee considering the Finance Bill will be aware that we have received a substantial number of written representations about the point. It would probably do Tory Members some good—at least it would inform them—if I read each and every one of those representations into the record. It would take some time. However, they might prefer it if I broadly outlined the Opposition's case, and if I were heard in silence it would be easier for me to do so. [Interruption.] I see that the hon. Member for Medway (Dame P. Fenner) is already seized by my remarks and wishes to make a contribution. Would she like me to give way to her?

Dame Peggy Fenner: indicated dissent.

Mr. Brown: No. I am sure that it is shame that keeps her seated.
When the former Chancellor addressed the issue of advanced corporation tax in his Budget speech, he promised us a measure which would, on the one hand, help all dividend-paying companies. That sounds like good news. He said that he would provide help in a way that would also raise considerable revenue. That should have set the alarm bells ringing, as of course it did, among two interest groups: pensions and charities, especially charities that rely on income from equity investments.
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To some extent, at least, the Government realise that the impost is shameful because they have provided for transitional arrangements to ease in the tax. The arrangements grant temporary relief to charities, so the Government clearly realise the harm that they are doing.
The impact on charities is bound to be severe and bizarre because the extra tax will come directly from the money that charities use for charitable purposes—in effect, a shift of money from those purposes to the Exchequer, for the Chancellor's purposes. And those purposes, according to Conservative Members, are to do with reducing the deficit.
The irony lies in the fact that the work that the charities which have written to us are doing is often financially assisted by the Government. Charities make a part payment towards certain projects, and the Government make another payment towards them. Some of the projects jeopardised by the extra tax are the very ones on which the Government have looked favourably—in some cases, they have even helped them by way of partnership.
Certainly, the charitable purposes of the organisations that have sent in representations are approved by the Government. The work that they do often substitutes for public provision. The organisations say that the Government are transferring responsibilities from the public sector to the charitable organisations at the same time as withdrawing funding from them through the tax system. They are also withdrawing funding through local government sources, inner city partnerships and other schemes.
Charitable organisations tell us that they expect to lose about £100 million eventually under these changes. They expect to lose £130 million from the VAT impost; and to offset all that, they expect an extra £31 million in gift aid and payroll giving—nothing like enough to make up for their losses.
This has been a bad year and a bad Finance Bill for charities. That is not just my view; it is also the view held by the Charities Tax Reform Group. Ministers are attempting to breach an important principle here—that charities should be exempt from taxation on their incomes. We seek to remedy that state of affairs by means of our amendments.

Mr. Alan Howarth: The proposed tax change to advance corporation tax in the Budget has not hit the headlines, but it represents the most important change for charities.
The way in which the change will affect four charities illustrates the seriousness of the damage that will be caused to charitable income. Once the new system is fully operational, the Royal National Lifeboat Institution will lose £250,000 a year as a result of the reduction in tax relief on dividend income. The gravity of that loss should be measured in comparison with the £80,000 that that charity will have to pay as a result of the imposition of 17·5 per cent. VAT on fuel and power. Barnardos will lose £200,000 as a result of the loss of tax relief on dividend income, while it will have to pay out £122,500 as a result of the VAT imposition.
The Coal Industry Social Welfare Organisation will have to pay an additional £460,473 in tax on dividends compared with £15,556 on VAT on fuel and power. The most spectacular figure, if I may use that adjective, is the amount of the burden on the Wellcome trust, which will have to pay no less than £10 million additional tax on dividend income compared with £70,000 in VAT on fuel and power. Those figures illustrate the importance of the issue.
The cost to charities of the reduction in the value of tax credits on dividends by the end of the transition period will be, on the Government's admission, not less than £50 million and the Charities Tax Reform Group calculates that the sum cannot be less than £100 million.
I tabled amendments Nos. 8 and 9 to protect charities from this proposed change. I did so after careful discussions with the Charities Tax Reform Group, which itself took advice from a parliamentary draftsman. I was therefore rather surprised when the hon. Member for Peckham (Ms Harman) lifted my amendment No. 8 and retabled it some three lines further forward in the Bill. Some people would call that pilfering; I would call it plagiarism. Plagiarism is a weakness displayed by people who want the world to be impressed by what they do, but who do not produce their own ideas, and lack candour, courtesy and shame. It is a pity that the hon. Lady could not support my amendment. Policy towards charities should not become another arena for party political opportunism.

Mr. Nicholas Brown: rose—

Mr. Howarth: I would be happy to give way to the hon. Member for Peckham if she cares to defend her conduct. Does the hon. Lady wish me to give way to her or would she prefer a knight errant in the person of the hon. Member for Newcastle upon Tyne, East (Mr. Brown) to champion her cause?

Mr. Brown: The hon. Gentleman should not be too chirpy about all of this. He spent the first part of his speech whingeing about his right hon. Friends on the Front Bench and now he is whingeing at my colleagues on the

Opposition Front Bench. He should be grateful for our support. If he refers to the Committee proceedings, he will discover that our position is entirely consistent.

Mr. Howarth: It is just a shame that once again the Opposition have been unable to produce their own ideas about how to deal with the problem.
I appreciate the Government's need for increased revenue. I also appreciate why my right hon. Friend the then Chancellor considered the possibility of improving the Government's revenue from taxation of investment income, and I am grateful for the transition period that the Government propose to allow to charities.
The Government say that the transition period will allow charities time to rearrange their portfolios, as if to suggest that charities might, by and large, escape the impost. I fear that matters will not be so simple. Responsible trustees will need to keep a balance in their investment portfolios and I am far from optimistic that charities will be able to escape from more than a limited proportion of the new tax burden. My amendments therefore call on the Government to convert the transitional relief into permanent relief. Technically, there would be no difficulty about doing that and I believe that my amendments would achieve that purpose.
Why is it so important that charities should be given permanent relief from the new taxation? The Government need a clear and consistent strategy in relation to charities. They are asking charities to do more and more. With care in the community, they are inviting charities into a new, more formalised and more extensive partnership with the state. It is right that they should do so. State agencies can only do so much. We are bumping up against the limits to which the Government can tax and borrow. State bureaucracies are relatively clumsy; indispensable though they are in social provision, they lack sensitivity to the infinite variety of personal human need.
Charities have entrepreneurial qualities; they are innovative, with a capacity to respond flexibly to new needs as they are identified. They are also highly cost effective as they lever voluntary energies. We need what Beveridge described as a comprehensive policy of social progress, which means harnessing all the resources of society. The Government should develop a new partnership with charities so that we can mobilise society's generosity. Charitable activity benefits not only the recipients but the givers, and strengthens our society's bonds.
For those reasons, the Government need a fully considered, clear view of the role of charities and the nature of the partnership that they want with charities and voluntary organisations. That implies that they should consider the range of their policies systematically to ensure that they are consistently supportive of charities. It means, for instance, that a national lottery intended to raise additional money for good causes should not be so designed as to generate a net financial loss to charity. I am sorry that my amendments on that subject were not selected, but I will say no more on the matter as I would be straying out of order if I did.
Cumulatively, the tax concessions for charities introduced by the Government during their period in office had, before the Budget, reached the impressive total of between £900 million and £1 billion. Sadly, the Budget will


reduce that total by not less than £100 million once all the measures in it are fully operational. Of those, the ACT change is particularly important.

Mr. Dorrell: I am listening to my hon. Friend carefully. Will he enlarge on the calculations leading to the estimate that when the ACT changes have run their full courses they will cost the charities world £100 million? Charities currently receive tax credits to the value of approximately £200 million. I do not understand, in simple arithmetic, how reducing the tax credit rate from 25 to 20 per cent.—a reduction of a fifth—can lead to a reduction of a half in the value of tax credits received by charity.

Mr. Howarth: I do not have all the figures to hand to assist my hon. Friend with the details of the computation. However, I am sure that he will respect the Wellcome trust as a source. The Wellcome trust considers that the measure will cost it an extra £10 million. If my hon. Friend considers the other large charitable foundations which we are fortunate to have in this country, and the totality of registered charities with investment income of widely varying levels throughout the country, he should not be surprised. The Charities' Tax Reform Group, which has a reputation for integrity and a high level of competence in policy analysis and how it develops its recommendations, has suggested that figure, so I hope that my hon. Friend will be willing to accept it as a serious estimate.
At a time when the Government are asking charities to do more, when private donations to charities have been depressed as a consequence of the recession, and when central Government and local government grants to charities have been under pressure, the Government have chosen to present a Finance Bill reducing the overall value of the tax concessions that they provide to charities. The Government should be more systematic and consistent in their relationship with charities and their policy towards them.
Let us consider the case of the Wellcome trust. The Government are looking to medical charities to support a larger proportion of the cost of medical research in this country. As it is, medical charities contribute more to those costs than the Government's directly funded Medical Research Council does. I make no complaint about that. But it seems to be an instance of where the left hand in Whitehall is not very clear about what the right hand is doing. The Government want medical research charities to do more to support medical research, but then reduce their capacity to do so.
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It is time that the Government reconsidered the balance of reliefs between giving and expenditure. Given the background of the large public sector borrowing requirement, the 20p basic rate which my right hon. Friends have held out to us for some time past still seems a good way off in the distance. The treatment of ACT can, however, be seen as a straw in the wind and a prelude to the 20p basic rate. As the Government are successful over the years in reducing levels of income tax, the value of income tax concessions and of relief on giving falls. Charities receive less money back as the rates of tax become lower, and as it becomes less tax efficient for donors to give to charities it becomes less attractive to them to do so, so income to charities on that side will tend

to fall. At the same time, for good economic reasons, the Government have chosen to switch the burden of taxation to indirect tax so that the rates have increased. The extent of the application of indirect taxation is also increasing. It is timely that my right hon. and hon. Friends should reconsider at a fundamental level their strategy for fiscal support for charities.
I hope that the Government will be able to reconsider their policy on ACT in relation to charities.

Mr. Andrew Rowe(Mid-Kent): Is there not another important argument? If the Government demand more and more from charities and the income to charities from donors falls, there will inevitably be a demand for the shortfall to be made up by direct grant from public sources? The danger of that process is that more and more charities will be pushed into becoming service providers to a monopoly purchaser. Charities would then lose much of their principal value—the fact that they have considerable freedom to choose whom they will help and how they will help them.

Mr. Howarth: With his deep knowledge of the charitable world, my hon. Friend has made an extremely important point. The Government must be wary that their tax policies do not result in their cutting off their nose to spite their face, to use a rather inelegant phrase.
Will my right hon. Friends rethink the ACT measure as it bears on charities? Will they give careful thought to the scope for a VAT refund scheme? It is extremely important that before we reach the autumn Budget some searching and radical thought should be given by my right hon. Friends across the range of Departments on what they expect of charities and how they are to support them.

Mr. Dorrell: In introducing the debate, the hon. Member for Newcastle upon Tyne, East (Mr. Brown) drew attention to the language that my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) used in introducing the change in the Budget speech. He made it clear that the purpose of the advance corporation tax change in the round was, first, to help dividend-paying companies and, secondly, to raise revenue. There has never been any doubt that that has been the effect of the slightly complex changes in ACT and tax credit rates.
The policy injects £1 billion this year and £1 billion next year into British company balance sheets. In the third and subsequent years, it delivers £1 billion into the Exchequer as a revenue-raising measure. Therefore, it both helps dividend-paying companies and raises revenues, as the Chancellor made clear that it would when he introduced the change.
The effect of the amendment would be to maintain a 25 per cent. rate of ACT and associated tax credits where the shares of company are held by a charity. That proposal was also supported by my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth). It is not difficult to see why that course does not commend itself to the Government, bearing in mind the practical effect of that tax change. It would discriminate between shareholders when determining the tax consequence of paying a dividend. The amendment requires that when a company pays a dividend it would first have to find out whether a share on its shareholders' register was held by a charity. If it was, the company would be required to pay 25 per cent. ACT rather than 20 per cent. to allow the charity to reclaim a 25 per cent. rate of tax credit on the dividend.
The proposal is extremely complex. My hon. Friend the Member for Stratford-on-Avon said that it would be possible to implement it. I cannot argue that it would be impossible, but it would certainly be complicated. Companies would be denied the benefit of the change, at least those with charities on their shareholders' register, and in the worst case it might make the charity undesirable and unwelcome as a shareholder. The hon. Member for Newcastle upon Tyne, East seems to be learning the lesson of his hon. Friend the shadow Chancellor because he is building for himself a lectern on the Opposition Dispatch Box. [Interruption.] I hope that he will not read it all.
I have illustrated why I do not find the proposal by the hon. Member for Newcastle upon Tyne, East supported by my hon. Friend the Member for Stratford-on-Avon attractive. That should not be taken to undermine in any way the Government's commitment to charitable enterprise and to providing the broadest possible support to charitable activity.
I entirely agree with my hon. Friend the Member for Stratford-on-Avon about the importance of encouraging charitable activity and its value to the person receiving it and those who are engaged in providing it. My hon. Friend was right when he said that charitable activity is part of the bond that binds society. It is precisely for that reason that we have proposed for the various organisations that will be affected by the change in ACT a long transitional arrangement. That will shield charities from the immediate consequences of the reduction in the rate of income tax on dividend payments from 25 to 20 per cent.
However, they cannot be shielded from that change indefinitely, nor is it right that they should be, especially when we remember, as my hon. Friend the Member for Stratford-on-Avon acknowledged, that charities have

already felt the effect of the reduction in the standard rate of income tax and therefore of tax credits and ACT from 33 to 25 per cent. The Government are committed to a further reduction to 20 per cent. We have given notice of the effect of the reduction in the value of tax credits. We are committed to it and when the transition provided for in the Bill has run its course, charities will face the new situation. As I have said, that does not reduce the value that the Government attach to charitable activity. However, we recognise that the inevitable consequence of a reduction in the standard rate is that the associated tax credits will also reduce in value. I cannot commend the amendment.

Amendment negatived.

Clause 107

INDEXATION OF ALLOWANCES ETC. FOR 1994–95 ONWARDS

Mr. Dorrell: I beg to move amendment No. 14, in page 76, line 36, at end insert
'and accordingly, in subsection (4) of that section for "subsection (5)" there shall be substituted "subsections (5) and (5A)".'
This is a minor drafting amendment to insert a missing cross reference in the amendment made by clause 107 to section 509C of the Taxes Act 1988.

Amendment agreed to.

Further consideration adjourned.—[Mr. Wood.]

To be further considered tomorrow.

Bill, not amended (in the Committee) and as amended (in the Standing Committee) to be further considered tomorrow.

International Development Association

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Mark Lennox-Boyd): I beg to move,
That the draft International Development Association (Tenth Replenishment) Order 1993, which was laid before this House on 21 June, be approved.
The International Development Association—IDA—is part of the World bank. Its aim is to help improve living standards for the world's poorest people. It provides loans on highly concessional terms to the poorest countries. IDA's central objectives are poverty reduction, economic reform and sustainable development. Those aims complement, and are mutually supportive of, the priority objectives of the United Kingdom aid programme. The World bank has an important leadership role in policy dialogue with developing countries and in promoting sound economic management. It also plays an important role in co-ordinating the efforts of other donors, especially in Africa under the umbrella of the special programme of assistance for sub-Saharan Africa.
The United Kingdom, therefore, has always been a strong supporter of IDA from its inception in 1960. In concert with other donors, we have played an influential part in shaping IDA's evolving role in response to the changing needs and priorities in the poorest countries. MA's resources are replenished periodically, and the negotiations provide an opportunity for donors to agree the policy priorities which should guide IDA's operations, to supplement the day-to-day policy guidance offered by the bank's board of directors.
The purpose of today's order is to authorise a contribution of £620 million to the tenth replenishment of IDA. Negotiations were concluded last December and donors pledged a total of 13 billion special drawing rights—about $18 billion. That maintains the value of IDA-9 in real terms and will cover commitments over the three years beginning this July. Taking account of the recycling of loans repaid by IDA's borrowers, the total amount available over that period will be about $22 billion.
IDA has received a mandate to continue and to increase its efforts in the key areas of poverty reduction, economic adjustment and environmental protection and improvement. I welcome the attention being paid to those important areas. Development will not happen if people are uneducated and unhealthy and have insufficient access to resources. Development will not be sustainable if we do not take steps to protect our environment. I am particularly pleased that more attention is to be devoted to bringing down the rate of population growth—a better life for all is not possible if economic growth is outstripped by population growth. Nor can prospects for sustainable development be enhanced when over-population leads, as it so often does, to environmental degradation.
The central objective of the World bank is to reduce poverty in developing countries. The bank is following a two-prong strategy, combining economic growth with the development of human resources through expanded social services. IDA is currently undertaking poverty assessments for all active borrowers. The assessments provide the basis for IDA's lending operations and help to determine a country's commitment to poverty reduction. An increasing feature of IDA's country assistance

programmes is that a Government commitment to poverty reduction warrants increased lending, while the absence of such a commitment leads to a lower level of activity. We have given strong support to IDA's bias in favour of support for those countries that are genuinely attempting to raise the standard of living of their poorest citizens.
In recent years, there has been an increased awareness among the donor community of the need to promote environmentally sustainable development. IDA has promoted and will continue to promote environmental protection and improvement throughout its operations. A key component of its strategy is the production of national environmental action plans for borrowers. The plans provide the basis for IDA's dialogue with borrowers on the means of securing sustainable development based on actions that have no adverse effects on the environment.
In addition, IDA produces environmental assessments for all projects when there might be cause for concern. The assessments made available to affected groups locally contain a full analysis of any significant social and environmental impacts. There are many examples of the increasing attention being given by the bank to environmental issues, not least the work being undertaken in such important areas as energy efficiency, water resources management and involuntary resettlement.
We have pressed successfully for good government—including respect for human rights—to be an important part of the development agenda in both bilateral and multilateral discussions. By good government, I mean competence in pursuing sound development and economic policies, legitimacy and accountability of public institutions and respect for human rights and the rule of law.
We have welcomed the attention to be given under IDA-10 to the economic aspects of good government—essentially, features that have long-term implications for a country's capacity to initiate and sustain programmes for effective poverty relief and environmental sustainability.
Another important area covered in the deputies' report is the need to strengthen the bank's project performance. Last year, the president of the World bank set up an internal task force to examine why the proportion of successful projects—although still high—was decreasing. The bank has prepared an action plan based on its recommendations: the plan was endorsed by the bank's board of directors last week. The bank will also publish a booklet outlining the steps that it is taking to improve performance.
I am confident that, with the active support of its members and borrowers, the bank's performance will improve in the areas under its control. It will be especially important for borrowers to commit themselves to the ownership of the projects in their portfolios.
In IDA-9, it was agreed that up to 50 per cent. of lending should go to Africa. This allocation will be maintained under IDA-10. We welcome that, as well as the recognition given to the needs of Asia, where more than half of the world's poor live; but it is in Africa that some of the greatest challenges in tackling poverty lie. IDA has played a leading role in supporting the efforts of countries in the region to put in place measures that will lead to a resumption in growth.
We have been strong supporters of the structural adjustment programmes, and have provided funds from bilateral aid programmes to supplement the efforts of the World bank. The special programme for Africa, to which we have committed £550 million, is intended to ensure that


reform programmes in low-income African countries do not fail for lack of finance. The programme has also increasingly devoted attention to protecting expenditure on the social services, and more generally to addressing the needs of the poorest. However, donors have recognised that more needs to be done to protect the poor during the implementation of adjustment programmes. Increasingly, IDA-supported adjustment programmes incorporate measures to protect public expenditure in such areas as primary health care and education.
IDA faces many new challenges. The association will need to address the requirements of new members, particularly countries that have emerged from the former Soviet Union and other countries that have rejoined the association. It will need to give increased attention to such areas as poverty reduction and environmentally sustainable development and it will need to implement measures that will improve its performance. IDA will therefore need the full support of its donors. In commending this order to the House, I can give an assurance that we shall be monitoring the activities of the World bank closely to ensure that the objectives set out in the deputies' report are met.
In summary, we are glad to support IDA's central aim of alleviating poverty and its concentration of resources in key areas, including environmentally sustainable development. We welcome its action to tackle the problems of the poorest, and particularly the poorer indebted countries in Africa. We support its attempts to help those countries improve their co-ordination of aid from all sources. We play a vigorous part in such co-ordination.
The World bank and IDA are the world's leading development institutions. They constitute the cutting edge for change and for improvement in the social and economic conditions in developing countries. Successive British Governments have supported the World bank and our commitment is as firm as ever. I commend the order to the House.

Mr. Michael Meacher: We have just listened to a typically anodyne canter round the course from the Minister, who did not seem even to notice that all his worthy and wordy platitudes, such as environmentally sound projects, the international rule of law and priority for poverty alleviation, are all belied by events and by the evidence that is before us. He did not appear even to notice that all these issues have been the subject of profound criticism, none of which he answered—not least, I might add, the British Government's monitoring, if one can use that word, of World bank activities. As I shall go on to show, that is ostentatious by its absence.
When an ODA resolution seeking support for several hundred million pounds for development projects comes before this House, one normally gives it a strong welcome. In this case, however, the tenth IDA replenishment, the criticism of IDA procedures runs so deep that, contrary to the whole tenor and content of the Minister's speech, with breaches of World bank policy so flagrant and results so often counterproductive, it is doubtful whether this order should be approved at all. On balance, I believe that the order should be approved, but only on the basis of far stricter accountability than the lax and complicit record of ODA Ministers in handling World bank projects would suggest so far.
At the heart of this debate, which the Minister did not even mention, is accountability, according to financial, environmental and developmental criteria, for the huge sums devoted to IDA and the World bank by donor countries, including Britain which will be contributing £620 million under the order. A significant proportion of IDA funds is directed towards big top-down projects that forcibly displace local populations, forestry projects that contribute to deforestation, large-scale energy projects that are highly pollutant and do not improve conservation, and structural adjustment programmes that worsen poverty and degrade the environment. They favour export promotion and unregulated business activity.
As I listened to the Minister, I wondered whether he existed on the same planet where all these things are taking place. There is no record of resistance by British Ministers or British representatives to these anti-social and anti-development policies of the World bank—not in every case, but in so many cases. On several occasions, the voting record shows that the Government colluded in and actively encouraged such policies.
As everyone knows, the Government have gone on and on about value for money in the case of the health service, ambulance workers, teachers, local authorities and, most recently, the police. However, in the face of overwhelming evidence that IDA lending can have damaging social and environmental effects, that project quality is deteriorating and that World bank policy and loan agreement conditions are ignored, Ministers have made no public protest. If I am wrong, let the Minister correct me.
Why did the Government not make known, for example, their intense dissatisfaction when the recent Wapenhans report revealed that 37 per cent. of World bank funded projects failed to meet the bank's own criteria? That compares with only 15 per cent. in 1981, and deterioration has accelerated in the past three years. The Wapenhans report states that pressure inside the bank to lend money and promote projects overwhelms all other considerations. As a result, poor project design, poor appraisal practices and a failure to enforce loan agreements are widespread in the bank's operations. If that is so, why do the Government continue to lend hundreds of millions of pounds without insisting and without checking that such major defects are rooted out? The Minister's speech was a travesty; some serious questions, involving large sums of taxpayers' money, need an answer, but we have not remotely begun to hear one. I should be glad to give way if the Minister could tear himself away from writing or reading his latest brief and perhaps deal with some of the problems.
How does the Minister justify the huge programmes of forced resettlement which World bank projects have often caused? In the 1980s, about 95 World bank supported projects caused the forcible displacement of more than 2 million people. The World bank policy objective is that those people are afterwards
afforded opportunities to become established and economically self-sustaining in the shortest possible period, at living standards that at least match and if possible improve on those before resettlement".
That is a quotation from page 19 of World bank technical paper No. 80. However, the bank has not documented one single case anywhere in the world where a large number of people displaced by one of its projects have improved, let alone regained, their standard of living.


These projects have often resulted in hundreds of thousands of poor people being made homeless and destitute.
Perhaps the most notorious case is that of the Narmada dam. I hope that the Minister has heard of it—it is in India. The World bank approved $450 million for that power and irrigation project in northern India at the expense of forcibly displacing more than 200,000 of the rural poor. After years of controversy, the World bank was obliged to set up an independent review team, whose conclusion is highly relevant to the debate. Its conclusion was that the the projects were
flawed, that resettlement and rehabilitation of all those displaced … is not possible under prevailing circumstances and that environmental impacts … have not been properly considered or properly addressed.
That is a pretty damning indictment. The team argued that the bank should consider the projects "afresh".
In fact, the World bank's management decided to ignore the independent review's advice. However, at the crucial meeting of the bank's executive directors in October 1992, an unprecedentedly high 44 per cent. of directors, including representatives of the United States, Japan, Canada, Scandinavia, Germany and Australia, voted to suspend funding, despite the management's advice.
Britain held a decisive vote at the meeting, which it used to support the project and to recommend the loan of more money. I submit to the House that that was a shameful decision by the British representative, who must have been acting on instructions from the British Government.
Perhaps the Minister will now tell the House how he justifies that decision. I would be glad if the Minister would take time from my speech to answer that point. I would prefer that to the glib platitudes that a civil servant has written for the Minister. I would like the Minister to answer a few relevant points about accountability—[Interruption.] May I have the Minister's attention? I am very concerned to have an answer to this point. I hope that we shall not hear the same kind of ridiculous travesties that we heard in the Minister's opening speech.

Mr. Lennox-Boyd: I understood that the hon. Gentleman was making a speech. With the leave of the House, I shall have an opportunity to respond in the usual way to any points that the hon. Gentleman or any other hon. Members wish to make. I think that the hon. Gentleman should leave the matter there.

Mr. Meacher: I am certainly not going to leave the matter there as I am sure that in the last five minutes of this extremely short debate we shall hear a few more platitudes which make no attempt to answer any detailed questions.
The point that I have raised is probably the most serious event in the past year in terms of World bank policies in so far as they affect Britain. How does the Minister justify the decision that was taken in respect of the Narmada dam when all the other major countries voted to suspend funding and Britain alone tipped the balance? That project produces the forcible displacement of 200,000 people. How can the British Government possibly justify that?
Will the Minister confirm that he will answer that specific point when he replies to the debate? I am prepared to continue if I am assured that I will receive an answer

later. I am not prepared to leave the point so that it is just swept aside in the last minute of this debate. Will the Minister assure me that he will answer the point about the British Government's culpable responsibility for the continuation of the Narmada dam project?
It is a particularly disreputable episode when the Overseas Development Agency's press release, which was issued at the same time, admitted:
there has been no effective consultation with those affected by the project, and there is insufficient baseline data to measure the impact of the project.
The press release continued:
The World Bank's own guidelines on resettlement have been repeatedly ignored.
In that case, the House will want to know why ODA Ministers gave their support to continuing that project. We want an answer to that tonight.
Nor is that saga an isolated case. The independent review team report states:
Problems besetting the Narmada project are more the rule than the exception to resettlement operations supported by the bank.
Similar results in fact happened elsewhere in India, Rwanda, Brazil, Indonesia, Argentina and Malawi.
Because forced resettlement on a mass scale is resisted on the ground, the policies that the Government are supporting have led to human rights violations and widespread disregard of international law. It is astonishing that the Minister can stand before the House and parrot words about respect for the international rule of law. Has he looked at any evidence of what is actually happening with the money that we provide to the World bank?
Since 1990 in the Narmada valley, for example, there has been a dramatic increase in beatings, arbitrary arrests and illegal detentions of the people to be displaced and their supporters. Does it not give the Minister just a little cause for thought that that is supposed to be in the cause of development? To take another example of human rights, in June 1992, when other donors world wide were refusing funding to Malawi because of recent human rights violations, why did the British Government support a highly questionable $55 million IDA loan for Malawi's power sector? Will the Minister, in his five minutes at the end of the debate, explain that?
How can the ODA piously say, as it does, that it is cutting off aid to Malawi because of human rights violations when at the same time it instructs its representative in Washington to support a major capital project for Malawi? How do the Government justify increasing IDA forestry lending when so much of the expenditure leads to deforestation? Again, the Minister uses the simple words "environmentally sound projects". I should like to know the evidence. A $23 million forestry and fisheries management IDA project in Guinea, for example, was supposed to protect the country's remaining primary forests, but by supporting the construction of 45 miles of road around two rainforest reserves it opens up 100,000 hectares in that area to logging. Why did the British Government support that? There are many examples, especially in India, but IDA's social forestry programmes in Peru, west Africa, Colombia and the Philippines have all benefited commercial interests rather than the poor.
I come to the point of the debate. As the World bank is now asking donor Governments for $18 billion replenishment and $5 billion for the so-called earth increment, which the bank would use for increased


environmental lending, how can the British Government trust the bank to use that much more taxpayers' money for environmental projects when the bank's current portfolio is so highly destructive to the environment?
My final main charge against the Government's lax and, to put it very politely, over-ready support for World bank policies, even when they are patently damaging in some cases, is that although one of the principal objectives of IDA is stated as poverty alleviation—I give full credit to the bank and to IDA that they have made that their primary objective—nevertheless a substantial proportion of IDA credits underwrite products that actually harm the poor. In particular, IDA-funded structural adjustment programmes, which absorb 30 per cent. of IDA lending, have worsened conditions for women, children, poor workers and small producers, have increased environmental degradation, and have led to austerity programmes that cut public expenditure on health and education. Why do the Government—again, I should like an answer and I do not see why I cannot have one now, although no doubt it will not be forthcoming from the Minister—continue to ram Thatchente economics down the throats of developing countries when they have abandoned the medicine here because it is too painful and too damaging and because it leads to spectacular failure?

Mr. Michael Fabricant(Mid-Staffordshire): I have been listening to the debate on the Floor of the House and in the Strangers Gallery. If the hon. Gentleman is so opposed to the order, because he considers it to be flawed, why did he say at the outset that he supports it?

Mr. Meacher: If the hon. Gentleman had been listening, he would have heard me say that I supported it on balance and with great reluctance. I still think it right that £600 million should be given to the World bank—but I made it clear that it was only on condition of tighter and more rigorous accountability than anything seen so far. If nothing has changed by next year and we hear the same travesty of an opening speech from the Minister, the result on this side of the House will be very different.
Why do the Government insist that a condition for debt relief and for aid is the fulfilment of structural adjustment programmes even to their destructive limit, yet when countries fulfil such programmes even with the destructive consequences that I mentioned they are still not offered a crumb of debt relief—as the G7 summit in Tokyo last week revealed only too clearly?
The expansion of cocoa production and the revival of the timber industry in Ghana are both conditions for structural adjustment loans to that country, yet they cause massive destruction of Ghana's last remaining forests. [Interruption.] If the hon. Member for Somerton and Frome (Mr. Robinson) disagrees, I shall be glad to hear his detailed comments.

Mr. Lennox-Boyd: I do become exasperated by the hon. Gentleman. He said that if I come to the House next year and make a speech of the kind that I made tonight he will not be able to approve the order. The hon. Gentleman does not know what he is talking about. This replenishment is for a three-year period.

Mr. Meacher: I am perfectly aware that it will last a long time, but if the Minister will only wait to hear the end

of my speech he will hear me say that we should have annual debates on this issue, and not confine discussion to one and a half hours after 10 o'clock.
What is the point of the Government boasting of any particular increase in bilateral aid programmes—when that occasionally happens—if the conditions of the multilateral aid programme have such devastating consequences for the same recipients? There is no consistency between the bilateral and multilateral aid programmes.
For all those reasons, we are deeply sceptical about the Government's willingness, let alone determination, to ensure full accountability for the £600 million replenishment. A new framework is needed that will allow much greater public scrutiny of both the World bank and the regional multilateral development bank, so that taxpayers' money is spent and is seen to be spent in ways that genuinely benefit developing countries.
I make three specific proposals to achieve that, and I pay warm tribute to the excellent pioneering work done by my hon. Friend the Member for Southampton, Itchen (Mr. Denham) in this regard.
First, a report should be submitted by the World bank to Parliament each year and the Government should offer a day's debate on it so that issues of overriding importance involving billions of pounds can be properly debated. It is not acceptable that discussion of issues of such magnitude, affecting one-third of the world's population, should be confined to a debate such as this, attended by a handful of hon. Members on either side—most of them giggling and talking at the side.
Secondly, we want mandatory publication—and I hope that the Minister will respond to this point, too, and that he will make a long winding-up speech because he has so many comments to make—of the United Kingdom's voting position at the level of board decisions within the bank. That is important if another Narmada is to be avoided. At present, shameful decisions such as that taken by the British Government over the Narmada dam are taken in a complete vacuum without any reference to Parliament before or after. That is a major loophole in what is supposed to be a democratic system of government and one that must be remedied.
Thirdly, we believe that technical documents which have a bearing on board decisions, such as the environmental impact statements, should be released in advance of board meetings that take the decisions. Again, one would have thought that that was an obvious matter. NGOs have sometimes had some success in winkling out specific details on particular projects and exposing them to the public and to the media, but that is an arbitrary hit-and-miss affair. Surely such technical documents are the kind of material for which there is a public entitlement to know on a systematic basis.

Sir David Steel: I have been following the hon. Gentleman's criticism. Does he accept that the bank seems to have responded to such criticisms? In April, it made a number of procedural changes, including the one to which he has just referred. The bank will make the environmental assessments more widely available to member states and on the bank's premises.

Mr. Meacher: I accept that point. I also accept that there were references in the papers today, especially in the


Financial Times, to various improved procedures. I strongly welcome them. I do not think that they take us very far, but I believe that they are in the right direction. I should like the whole critique of the Wapenhans report to be addressed.

Mr. Lennox-Boyd: It is being addressed.

Mr. Meacher: The Minister says that it is being addressed. Where is the hard evidence? Where is the beef?

Mr. Lennox-Boyd: It would be better to respond to the hon. Gentleman at the end of the debate, which is what I am anxious to do.

Mr. Meacher: Why not do that?

Mr. Lennox-Boyd: The hon. Gentleman provoked me on at least six occasions. I am jolly well going to intervene now. As the hon. Gentleman knows, the board considered the recommendations of the Wapenhans report last week. I said that in my opening speech, of which he took not a blind bit of notice. A booklet has been published about the Wapenhans report and about the recommendations to address those matters. The hon. Gentleman will be able to read it if he bothers to look at any of the sensible facts.

Mr. Meacher: I am glad to know that the Wapenhans report will be addressed. There is a great deal of difference—[HON. MEMBERS: "Why not listen?"] I listened carefully to platitude on cliche on boring phrase from the Minister at the beginning. He appeared not to be aware of any of my criticisms tonight. He did not address a single one.
I am pleased that we shall have a response to the Wapenhans report. What I want to know is how far it addresses those comments. There is a 37 per cent. failure by the bank to meet its own criteria. What changes in management will bring that figure below 5 per cent. or 10 per cent.? Perhaps there should be no failure at all. Until we have seen the response, I shall suspend my judgment. However, I am glad to know that there is at least some readiness to address these issues.
I attach great importance to the three demands that I have made to improve the bank's acountability. We are still deeply sceptical about the accountability of IDA and of the World bank. I give the Minister notice that we shall campaign to put all three proposals into effect. Without them, the role of Parliament in sanctioning £620 million of extra expenditure is wholly unsatisfactory. The Opposition will certainly not accept such an unsatisfactory basis again for any future debates on IDA replenishments.

Mr. John Denham:(Southampton, lichen): As has already been mentioned, last week the World bank discussed the document on increasing openness and access to information. As a Member of Parliament who tries to follow World bank affairs, I thought that it would be interesting before last week's board meeting to obtain a copy of that document. I approached the Washington office of the United Kingdom's executive director of the World bank by letter and said that I understood that the document was to be discussed at the board meeting, and that it was about freedom of information and access to World bank information. I received a reply from the United Kingdom's executive director saying that I could

not be shown a copy of the document because it was confidential. That travesty of openness and accountability surrounds the Government's approach to the World bank. Even when openness and accountability are being discussed, hon. Members cannot get a sight of the documents through official Government sources.
I did the obvious thing, which was to ring up an American non-governmental organisation, and I was sent a copy, by immediate courier, from the US. Not all Governments work on the basis of such secrecy and lack of accountability.
It is interesting to learn from the press that discussions are taking place in the World bank about the response to the Wapenhans report, and the next steps document produced by the World bank management. The House knows from the press that the first version of the next steps report was informally rejected by board members, and a board meeting set up to discuss it was cancelled and turned into a seminar. To my knowledge, no Back-Bench Member has any idea of what input the United Kingdom Government made in the discussions about the Wapenhans report.
The issues are not simply that the report shows than an ever-increasing number of World bank projects are failing to make an economic rate of return. Those who wrote the Wapenhans report decided to assess World bank projects, and projects alone, on the basis of the economic return on the investment in those projects. As the development and environmental organisations have repeatedly said. and not just in this country, that is a narrow set of criteria by which to judge the effectiveness of World bank projects. My belief, and that of many of those organisations, is that if World bank projects and loans were assessed not purely on an economic rate of return, but by their effectiveness in poverty eradication and in promoting sustainable development, a much larger proportion of the World hank portfolio of loans would be shown to have failed.
I do not believe that any hon. Member knows whether the United Kingdom Government have pressed, in the discussions on the Wapenhans report, for a broadening of the criteria by which the success of World bank loans is to be judged, or what specific management measures in the World bank our Government has pressed for. I cannot see any reason why hon. Members, and the much wider development and environmental community, should not have access to that information. Why is the conduct of our executive director, who will be responsible for spending the £620 million that we are debating tonight. shrouded in such secrecy?
The problem is that the secrecy and lack of accountability that have surrounded the World bank go to the heart of its many failures as a development institution. We should be aware that many NGOs in the north, and far more in the south, would like us to vote against the replenishment of the IDA. That would be an enormous step, and not one that I am prepared to contemplate, but we must all be aware of the power and significance of the money under discussion.
Bank lending determines the economic and social policies of recipient countries. For example, for the more than 20 African countries covered by the special programme of assistance for Africa, access not only to the IDA but to bilateral funding is effectively dependent on the implementation of bank-designed structural adjustment policy. Those policies—not the policies of the recipient Governments—determine the relative priority of


social spending and environmental protection, trade and fiscal policy, agricultural and industrial policy. As my hon. Friend the Member for Oldham, West (Mr. Meacher) said, they set the context that determines the success or failure of every bilateral trade programme, every NGO project, every indigenous development initiative and every local business venture. By replenishing the IDA, we are strengthening the awesome power of the World bank to determine the policy of Government after Government and country after country.
There is not time to detail the many failures of World bank policy—many have already been referred to. The Wapenhans report, the task force on portfolio management, has recognised the unacceptable and rising rate of project failure. It looked only at projects, but many were failing because the structural adjustment loans promoted by the World bank were also failing, and creating an economic situation in which individual development projects were bound to fail. We should bear in mind that every failure of World bank lending rebounds not on the bank, as it would with a commerical bank, but on the borrowing country in the form of an increasingly unserviceable debt burden. By and large, these projects were conceived outside the countries concerned, and designed and implemented outside those countrie too.
The criticisms levelled at the World bank are not new. The bank's belated response owes much to the growing threat to the bank from northern taxpayers, who ask why they should continually fork out for an organisation with such a poor record—

Mr. Fabricant: Does the hon. Gentleman accept that the World bank lends to third-world countries and undertakes risky ventures? If they were not risky ventures, commercial banks would make the loans. Surely, by definition, the failure rate of loans by the World bank will be higher than that of the commercial banks.

Mr. Denham: It is true that some development lending is bound to fail. The problem with the World bank is that it conceives the loans in the first place; it designs the projects, makes the loans—and then offloads the failures on to developing countries and their peoples. That problem has yet to he overcome.
The bank is a strange organisation. It is a creation of Governments, particularly the powerful Governments of the industrialised countries. Yet in almost every industrialised country there is weak scrutiny of the bank by Governments and elected Parliaments, or similar institutions. The bank has a high degree of autonomy. Although it is staffed by intelligent people from all over the world, almost all of them share a narrow set of economic ideas, were trained in a small number of the same northern universities, and share almost identical ideological outlooks. The bureaucracy of the bank is not accountable enough to those whose lives it touches.
This is why the bank's recent commitment to poverty reduction, the promotion of education for women, environmental assessment and sustainable development has been greeted all around the world with scepticism. Although we all applaud the intention, we have yet to see significant improvements on the ground. We have yet to see a willingness to examine whether structural adjustment policies work, or just meet a politically correct test of free market ideology.
The Washington office of the United Kingdom Government does not have enough staff independently to assess the bank's work; nor does the ODA. One critical new policy has been consultation with local non-Governmental organisations on implementation of the bank's policies, but the ODA is incapable of answering parliamentary questions about which NGOs have been consulted, and in which countries. We just have to trust the bank to get it right.
The World bank's first report on environmental impact assessments reveals that local consultation with NGOs is at best patchy, so the Government cannot even monitor our role in the bank, or learn whether it is fulfilling its objectives.
Apart from debates such as this, every three years, the House has scarcely any opportunities to discuss how the bank is performing. Given the large sums under discussion, that is not adequate. The House should be given an annual report on the World bank's activities, and a debate on them. The ODA should produce its own independent assessment of the impact of the bank's policies in countries where we have bilateral aid programmes, and assess the impact of those policies according to the objectives set by the ODA for development.
There is no reason why the House should not be given a report, at least after the event, on the voting record of and policy stances adopted by the United Kingdom executive director.
I believe that the House should ensure that the relevant Select Committees regularly scrutinise this country's policies towards the bank. The National Audit Office should also, on occasion, examine whether we get value for money, judged by sustainable development criteria, for the large sums of money at stake.
New and increased transfers of money to the poorest developing countries are needed. By agreeing the proposed increase, however, the House will pass new powers to the bank's staff in Washington to determine the lives of hundreds of millions of people. If we do that, we should make it clear that, in future, sharp questions are asked continually about how that money is used and the real impact it has on people's lives and the environment.

12 midnight

Mr. Tony Worthington: We have heard two good contributions from my colleagues on the Opposition Benches.
It is difficult to overestimate the importance of the debate. As my hon. Friend the Member for Southampton, Itchen (Mr. Denham) has said, the World bank and the International Monetary Fund of Washington are the governments, in an economic sense, of innumerable countries. How do we scrutinise what is done by the World bank? We have this kind of debate, late at night, once every three years. That simply is not good enough as a means of holding accountable some of the most powerful people in the world. It is through the World bank and the IMF that the private sector decides whether to invest in certain countries. Access to the resources of the world depends on the imprimatur of the World bank.
My hon. Friend the Member for Oldham, West (Mr. Meacher) was perhaps a little harsh on the Minister for being complacent. He is not the only Minister to display


such an attitude. The Minister for Overseas Development, Baroness Chalker, said about the additions to IDA resources:
I have a high regard for the effectiveness of IDA in promoting development in the poorest countries.
It is incredible that the British Government are less critical of the IDA than the IDA itself. Following the Wapenhans report, I find that very depressing. That report found that a declining proportion of good projects was being undertaken. It revealed alarming problems with the bank's follow-through on loans and found that most of the bank's expertise was devoted to coming up with projects of which it approved and spending large amounts of money. Hardly any of its expertise was devoted to determining whether a project was doing any good. It found that, on average, projects took two and a half years longer to complete than estimated.
One would never know from the Minister's opening speech that more than 40 non-governmental organisations had asked that the replenishment should not go ahead. They were speaking on behalf of the poor of the world because of the damage done by the IDA. Of course I demand that resources should be given to the poor, but I want them to be used properly and appropriately. That expenditure should be subject to critical scrutiny. It should not be applied simply in a manner that is more in the interests of the donors than of the poor.
It is worth considering what the IDA has said about itself in its 32-page document. It contains just one sentence about debt being a matter of concern for the developing world. The World bank displays absurd complacency about the debt crisis being over when everyone in the poorest parts of the world would say that it is easily the most important problem to be faced.
The entire document contains no mention of the mega-projects, the energy projects for which the IDA has been famous. It gives the impression that all the IDA does is to promote women's health, family planning and the like, but the IDA and the World bank are bywords for building large dams that displace many people. As my hon. Friend the Member for Oldham, West said, those centralised, top-down, ill-conceived projects are more to the benefit of the donors, their construction companies and the elite of poor countries than to poor people. In the 1980s, the World bank sponsored some 90 energy projects involving 90 dams and the displacement of some 2 million people. It has not come back with a single report showing that those people's lives were improved.
The IDA's document mentions new concern for women's education, reproductive health and general welfare. The IDA and World bank projects show new concern for the need for safety nets, but they do not mention that those safety nets are needed because of the activities of the World bank and the IDA. A huge part of the loans is for structural adjustments that put the needs of the first world first and damage the third world's capacity to feed itself.
The IDA and the World bank do not act first on behalf of the developing world as they claim. The inside front cover of the IDA document says:
The central challenge for IDA is…to mobilise the will and the resources of the affluent and afflicted alike in the global battle against poverty.

One would never gather from that statement that, during the 1980s, the external debt of sub-Saharan Africa rose from 28·2 per cent. of gross domestic product in 1980 to 109 per cent. of gross domestic product in 1990. No mention was made of the fact that, in 1991, the World bank's transfers to developing countries were minus $1·7 billion. The World bank took out of Africa $1·7 billion more than it put in, and the Government say that it is an effective way to invest in the developing world! The IDA document does not mention the lack of representation of the interests of the poor in the GATT talks. It does not criticise protectionism, such as the common agricultural policy and its devastating impact on the third world.
The Minister must deal with those issues in his response. What will he do—not just say that he will do—to increase the accountability and transparency of the World bank and the IDA? Why should not we know how we vote, as the Americans do? We are being asked to approve the expenditure of £620 million, which an unknown civil servant spends in an unknown way. How did we vote last week—according to the Financial Times, it was today—on public information policy at the bank? How did we vote on the issue that the world should know what happens on the board of the World bank? What was our director instructed to do? Did he say, "Open the doors" or "Keep the doors shut"?
How did we vote on the right of appeal on complaints against the bank's activities, which was before the board today? Is there to be a right of appeal for poor people affected by the decisions of the bank which parachute projects on people? How is our policy at the World bank decided? Does the ODA, the Foreign Office, the DTI or the Treasury decide how we vote? What ministerial meetings take place? What is our policy? When will the Government reveal their policy on the huge amount of money that we vote to be spent there? Will the Minister give us an honest evaluation of the World bank and the IDA? What side does he take on the Wapenhans report? What is he going to do about the World bank culture that puts lending first and the consequences and planning second?
It is well known that Africa is our special area of influence and concern at the bank and the International Monetary Fund. It is well known that nobody goes ahead with projects at the World bank without the say-so of the British director. It is recognised that Africa is our special sphere of expertise. The Americans might have special expertise in Latin America, but our specialist area is Africa. Other directors look to the British director for advice on projects in Africa. Where is the world's biggest disaster area? It is Africa—the place where the Minister, his colleagues and the Departments of State have most influence. When will we receive a re-evaluation of the world's Africa policy?
What are we going to do about forestry policies which exploit, rather than safeguard, the world's resources? My hon. Friend the Member for Oldham, West said that we praise Ghana for its structural adjustment policies; but there is not simply increasing poverty but the pillage of the rain forests in Ghana.
The World bank and the IMF are peddled as the wealthy helping the poor, but the poor are becoming more numerous all the time, and the gap between rich and poor is widening. We are approaching the 50th anniversary of the Bretton Woods institutions and there could not be a


better time for re-evaluating. When the Minister says that he now backs the World bank, and the IDA, which does he mean—the old World bank or the new one?
The World bank vice-president for Africa spoke of how the capacity in Africa has been undermined. Earlier, the Minister gave his approval to the old World bank but now the vice-president for Africa, Mr Edward Jaycox, whose speech I have, says:
In sum the donors have done a disservice to Africa. After 30 years of technical assistance and so much money spent, Africa's weak institutions, lack of expertise and current need for more and not less assistance tell us that we have failed badly in our efforts.
That is what the World bank is saying now, but that is not the World bank that the Minister was backing earlier. Jaycox talks of 100,000 foreign experts working in sub-Saharan Africa and consuming a major chunk of all foreign aid moneys to the continent. Does the Minister agree with the World bank's assessment or does he agree with the earlier assessment of Baroness Chalker that the IDA's contribution was effective in developing countries? The Minister must tell us what changes he proposes because even the World bank and the IDA are more critical of themselves now than the Government.

Mr. Lennox-Boyd: We have had a great debate with the most characteristic exaggeration from the hon. Member for Oldham, West (Mr. Meacher), supported by his hon. Friend the Member for Clydebank and Milngavie (Mr. Worthington). We heard a much more balanced criticism from the hon. Member for Southampton, Itchen (Mr Denham). The right hon. Member for Tweeddale, Ettrick and Lauderdale (Sir D. Steel) also made a much more balanced and composed contribution, and placed the World bank's problems in a far more sensible context than that described by the hon. Member for Oldham, West. The hon. Gentleman did not even seem to know that we were discussing a three-year funding mechanism. He hid his confusion by saying that he was speaking about a debate next year, not that there should be another funding mechanism next year but that there should be such a debate every year. That covering of tracks was not lost on me.
If the hon. Gentleman had listened to my speech he would have heard me remind the House of the three-year funding mechanism. If he pulled his finger out and asked for a few more Opposition Supply days, one of which is to be held on Wednesday, he could have any number of debates on the subject. We should be delighted to debate these matters because we are confident of our assertions.
The hon. Gentleman spoke about the Wapenhans report. He did not listen to a word of my speech because I said that an action plan by the bank based on the recommendations of that report had been cleared last week. There is a booklet describing the steps that the World bank intends to take to improve performance. The hon. Gentleman was not interested in such significant facts but, for reasons that are best known to himself, he contented himself with a sustained attack on the World bank. I shall deal with some of the criticisms of the hon. Gentleman and his hon. Friends, but I shall first deal with some of the other contributions in the debate.
The hon. Member for Clydebank and Milngavie said that the document before the House did not contain a report on the world's debt problems. I hope that he is

aware that, following a comprehensive study, the World bank issued a separate report on the important subject of debt repayments. Everybody realises that that subject is at the heart of the world's development problems.
The hon. Gentleman made another point with which I am familiar about the fact that some countries in sub-Saharan Africa are repaying the IMF more than they are currently receiving by way of loans. I shall deal with what the World bank is seeking to do to address that problem, but I shall first put the matter in context. It must be remembered that IMF flows are only a part of total assistance provided to Africa. The countries of sub-Saharan Africa have consistently received more than they have paid out when aid, foreign direct investment and other sources are included. The amount received in 1991 was about £7 billion.
As I have said, the World bank is aware of the problem that the hon. Gentleman mentioned and it is anxious to help those countries to meet their technical and financial needs with a 0·5 per cent. interest rate and a 10-year repayment period. The IMF's ESAF provides concession-al support for medium-term reform and it seeks to address the problem.
The hon. Member for Itchen spoke about access to information about the World bank. The United Kingdom director's reply is correct: there is a need to preserve a balance between openness and confidentiality about the board's proceedings and its relationship of trust with borrowers. One of the reasons for that balance is to enable our representative to make clear and firm criticisms when the occasion demands it. We must be able to say what we think without our remarks being the subject of press comment which gets back to the country whose conduct is being criticised. There is a need for confidentiality, and any sensible person would realise that a proper balance must be struck in that area.
I have mentioned the Wapenhans report. Action has been taken on that report, which was instituted by the bank to address some of the problems.
The World bank lends money for complex and difficult projects. Over recent years, some of the projects have been made even more difficult by the complicated economic background, the world recession and the fact that those projects have not always materialised in the way that over-optimism suggested they would.
Mr. Lewis Preston, during his relatively short time as president of the bank, has made it his priority to deal with the problems of environmental degradation. That is the reason for the Wapenhans report, which was initiated by the World bank. The bank's directors have made decisions in response to criticisms, as was explained to the House last week.

Mr. Worthington: Does the Minister agree that the Wapenhans report is a major step forward? If so, why did we hear about it only because it was leaked?

Mr. Lennox-Boyd: I cannot believe that that is the case. I cannot comment on the allegation of a leak as I have not heard it previously. The fact is that we received the resolution of the directors only last week. It is not appropriate to discuss the Wapenhans report before the bank's directors have had the opportunity to say what action they are taking on the report and what they intend to do to deal with the matters that it identifies.

Mr. Denham: The Minister referred to some problems with World bank openness and decision making in relation to developing countries. Can he explain why we should not know what policy position the UK executive director took in the discussions on the Wapenhans report, which is about the management of World bank projects, not about specific policies in a particular developing country?

Mr. Lennox-Boyd: We support the bank's intention to make publicly available more information about its projects and programmes. That is the British position. As the hon. Gentleman knows, other members of the board have differing perceptions about the degree to which the bank's operations should be open to further public scrutiny. No decision has been reached on the bank's proposals, but it will be preparing revised proposals for further consideration by the board.

Sir David Steel: Does the Minister accept that there is a difference between public scrutiny and public accountability? I think that the House is more concerned about public accountability. Is not there a case for persuading our colleagues on the Treasury Select Committee to take a closer interest in the affairs of the IDA and the World bank?

Mr. Lennox-Boyd: I have no objection to that suggestion, but it is also a matter for this Chamber. Every opportunity is afforded to Opposition parties to have Supply day debates on these important issues. Indeed, some of the subjects that the Opposition choose for debate are so uninteresting that I should have thought that occasionally they would want to choose the subject of aid, which is so close to the heart of the Labour party.
I want to make a few comments about environmental protection and sustainability. The hon. Member for Oldham, West—[Interruption.] He is not listening to me again. I do not care if he does not listen to me, but if he does not listen he should not criticise me. He should give credit to the fact that over recent years environmental concerns and the whole question of environmental impact assessments have increasingly played an enormous part in the World bank's activities. The implementation of IDA-10 will help developing countries to meet the priorities of Agenda 21 that were agreed at the earth summit a year ago.
The World bank's performance on environmental issues has been mixed in the past, but it has improved in recent years as lessons have been learned. Understanding the complex economic and social pressures over the past few years has been of benefit to the bank, and there has been significant progress in the way in which the bank has approached such problems. For example, it has set up a new vice-presidency for environmentally sustainable development. The decision to establish the vice-presidency constituted an explicit recognition of the significant shift in development thinking which has taken place in the bank and elsewhere, and which recognises the enormous importance of environmentally sustainable development—in particular, in regard to the bank's responsibilities.
The bank and the new vice-presidency are assisting the bank's operational departments in the delivery of quality assistance to member countries. The bank has also been reviewing its policies in sensitive environmental areas; recent studies, for example, have concerned the electric power sector—to which the hon. Member for Clydebank

and Milngavie referred—and energy efficiency, conservation and water resources. Currently under review is the bank's policy on resettlement; the executive board will consider a report on that at the end of the year.

Mr. Meacher: If the Minister is so concerned about increasing sensitivity in regard to environmental projects, how does he explain the fact that, a year ago, the World bank's management wanted to continue with the Narmada valley project? How does he explain that it went through the executive board only because the British vote permitted that decision to be made?
Does the Minister accept World bank-funded projects that lead to the forcible resettlement of 2 million people? If not, what are the British Government doing to stop it?

Mr. Lennox-Boyd: I was about to turn to the Narmada valley project; I anticipated the hon. Gentleman's remarks. As he knows, at the end of March the Indian Government announced that they had asked the bank to cancel the undisbursed portion—some $170 million—of World bank loans, and had decided to complete the dam themselves.
Throughout the difficulties that the World bank had over the Narmada valley project, the Government—and our representative, on instructions from the Government—were extremely critical of the bank's performance in this regard, and whatever assertions the hon. Gentleman has made otherwise are simply untrue. As for the voting arrangements and the allegations that the hon. Gentleman has made, no vote was taken in October 1992, when the board considered the way ahead on the project. As I have said to the hon. Gentleman before, the board often works by consensus. A majority of directors supported the continuation of World bank funding, subject to the meeting of certain benchmarks by the Indians over a six-month period.
We were concerned with the welfare of those affected by the project to which the hon. Gentleman has referred, but we judged that the best chances of a successful resolution of the resettlement and environmental projects associated with the programme depended on the World bank's continuing involvement with the project. That has not happened. That is why we decided to give the project one last chance—but there was no vote.
I have touched upon some of the important points that have been made by Opposition Members. I welcome these debates. I should be happy to have further debates about World bank projects that are causing concern. The World bank has had difficulties over many large projects for a number of years. Those difficulties are due to the world recession and concern about their impact on the environment. The concern has grown in recent years. It was not so great when these projects were put in hand.
The World bank is aware of the criticism. It is taking action and has set up inquiries to examine it. The World bank is also responding to the criticism, a point that was made by the right hon. Member for Tweeddale, Ettrick and Lauderdale.
I ask the House to support the motion.

Question put and agreed to.

Resolved,
That the draft International Development Association (Tenth Replenishment) Order 1993, which was laid before this House on 21st June, be approved.

STATUTORY INSTRUMENTS, c

Motion made, and Question put forthwith pursuant to Standing Order No. 101(5) (Standing Committees on Statutory Instruments, amp;c.).

PARALYTIC SHELLFISH POISONING

That the Food Protection (Emergency Prohibitions) (Paralytic Shellfish Poisoning) (No. 5) Order 1993 (S.I., 1993, No. 1515), dated 15th June 1993, a copy of which was laid before this House on 17th June, be approved.—[Mr. Conway.]

Question agreed to.

Motion made, and Question put forthwith pursuant to Standing Order No. 101(5) (Standing Committees on Statutory Instruments, amp;c.).

That the Food Protection (Emergency Prohibitions) (Paralytic Shellfish Poisoning) (No. 6) Order 1993 (S.I., 1993, No. 1523), dated 18th June 1993, a copy of which was laid before this House on 21st June, be approved.—[Mr. Conway.]

Question agreed to.

Motion made, and Question put forthwith pursuant to Standing Order No. 101(5) (Standing Committees on Statutory Instruments, amp;c.).

That the Food Protection (Emergency Prohibitions) (Paralytic Shellfish Poisoning) (No. 7) Order 1993 (S.I., 1993, No. 1606), dated 23rd June 1993, a copy of which was laid before this House on 25th June, be approved.—[Mr. Conway.]

Question agreed to.

EUROPEAN COMMUNITY DOCUMENTS

Motion made, and Question put forthwith pursuant to Standing Order No. 102(9) (European Standing Committees).

AIR TRANSPORT

That this House takes note of European Community Document No. 4146/93, relating to air transport relations with third countries; supports the Government's aim of developing satisfactory procedural arrangements on the basis of which negotiations between the Member States and third countries could be conducted; and also agrees with the Government that any such negotiations should require separate Council authorisation, which should be given only where action would be plainly better taken at Community rather than Member State level.—[Mr. Conway.]

Question agreed to.

Motion made, and Question put forthwith pursuant to Standing Order No. 102(9) ( European Standing Committees).

FRONTIER CONTROLS

That this House takes note of European Community Documents Nos. 4077/92, 4527/92, 6497/92, 7632/92 + CORI and 8679/92, relating to the abolition of frontier controls and the completion of the internal market; welcomes the benefits to business and consumers of the freer flow of goods across the internal frontiers with other Member States of the European Community from 1st January 1993; and endorses the need for immigration controls to be maintained on non-EC nationals at United Kingdom frontiers together with such checks as are necessary to combat terrorism, drug trafficking or other serious crime.—[Mr. Conway.]

Question agreed to.

SOCIAL SECURITY

Ordered,
That Mr. Patrick Nicholls be discharged from the Social Security Committee and Mr. Peter Thurnham be added to the Committee.—[Sir Fergus Montgomery, on behalf of the Committee of Selection.]

Flint Bypass

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Conway.]

Mr. David Hanson: The subject of this debate is of great interest and importance to my constituents, especially to those people who live, as I do, in the town of Flint or who travel through Flint, for work or leisure reasons. Especially at this time of the year, holidaymakers travel through Flint in their thousands.
As with all Adjournment debates, I wish that the issue had not reached this stage. Unfortunately, it has done so, due to a variety of factors that have conspired to ensure that Flint's travel problem remains unsolved. The need for a bypass in Flint has long been recognised. When I was first selected as the Labour parliamentary candidate for Delyn about seven years ago, many people believed that the issue was about to be resolved by the implementation of a coastal route. It may help if I outline how we have arrived at this position and the need for the debate.
Although this is not directly a Welsh Office scheme, the Welsh Office has had a major influence on events so far. Flint, in the south of my constituency, is a pivotal town on the coastal road into north Wales. The A548 which passes through the town carries, according to current estimates for a 12-hour day, 10,000 vehicles between 7 am and 7 pm. A large amount of industrial and commercial traffic enters the town, bound for industrial areas to the north of Flint, the recently abolished enterprise zone area and towns along the coastal road in the far north of my constituency. Local traffic is also heavy. At the peak of the tourist season, as now, there is a great deal of additional traffic, which causes chaos for local people at weekends.
The need for a bypass is accepted by all who have been involved with the town and its welfare. In response to demands for a bypass in 1985, a public consultation exercise was undertaken by the county council to obtain views on two possible routes for a bypass—an inland route and a coastal route. Local opinion was overwhelmingly in favour of the coastal route, but the opposite view was expressed by environmental groups, including Cadw—Welsh Historic Monuments—and the then Nature Conservancy Council. Following consultation, however, the coastal route for Flint was adopted by the county council as its preferred route and the scheme was prepared to the stage where planning permission could be applied for by the county council.
In June 1989, the then county surveyor and bridgemaster applied to the county council for deemed planning permission for the coastal route. The application included an environmental statement because of the effect that the scheme could have had on Flint castle and the Dee estuary, a site of special scientific interest and a special protection area under European legislation. Copies of the application and all representations were forwarded to the Welsh Office in accordance with the procedures.
The Secretary of State informed Clwyd county council that, because the issues raised in the objections were of more than a local nature, the county council should not determine the application and that it should be passed to him for determination. He subsequently decided to hold a public inquiry into the coastal route, which was held in March 1990. After consideration of the inspector's report, the Secretary of State informed the county council that he


was refusing planning permission for the scheme on the ground of its environmental effect on Flint castle and the Dee estuary. In my view, the Flint castle objection by the Secretary of State was sadly misguided.
Flint castle is the hidden monument of north Wales. The town is very proud of it but, passing through the town on the A548, it is very difficult to see it. The coastal route would have opened the castle to a new travelling public who would have seen it in all its glory. It would not have damaged the castle. The environmental objections made at the time were valid, but they could be overcome especially when viewed with the alternative with which I shall deal in a moment.
The inspector's conclusion on the county council's coastal route option was that there was no reason to suppose that an alternative way of bypassing Flint could not be found. Clwyd county council then decided to look afresh at solutions to find a bypass for Flint and appointed consulting engineers to carry out a new feasibility study. The findings were that there was only one effective, feasible route remaining—the inland route, which was not dissimilar to that taken to consultation in 1985.
The new inland route was the subject of a further consultation exercise held in June last year to obtain the views of the general public and a wide range of other consultees. Due to strong local opinion against the route, and a demand to resurrect the coastal route, the council did not in the end adopt the new proposal of the inland route as its preferred route.
Shortly after my election to the House last year, feelings were running very high. The inland route proposed by the county council was met wih horror in most of Flint and in the neighbouring village of Bagillt. A genuine upsurge of public feeling against the inland route ensued, not orchestrated by any political party but reflected by all politicians at a local level.
The inland route would have passed near to many properties in encircling the town, cut through agricultural and residential land, sliced the local golf course in half, bordered a children's play area in the process and removed much of Flint's remaining open spaces, including the town's major recreation area and green space, Cornist park and hall which is owned by the borough council. In doing so, it would have failed in the key objective of reducing industrial traffic to the industrial areas of Flint and, in particular, Castle park industrial estate. Environmentally, the inland route would have devastated Flint.
I was besieged by letters 10:1 against the inland route and by petitions; concern was expressed at my surgeries and an action group was formed called FAIR, Flint Against the Inland Route. The Member of the European Parliament, Joe Wilson, Flint town council, Flint borough council members and two county councillors, Alf Jones and Alec Aldridge, made their opposition very clear to the town and the public at large. I am pleased to see that councillor John Hughes, a member of Flint town council, has travelled to London to witness this debate.
The county council's consultation exercise was clear: an inland route was unacceptable to Flint and its people and a public meeting organised by the town council highlighted the opposition which I fully share. Clwyd county council wrote to the Minister of State, Welsh Office asking for a

meeting to discuss the issues involved because both the coastal route and the inland route were unacceptable and traffic was still building up.
That request for a meeting was refused on the valid ground that the Minister might in future be required to make a decision on subsequent planning application and he could not prejudice his position. Subsequent requests to the Minister from me for a meeting with the county council were refused in similar terms. I understand that the Minister's split role in Wales, as the Minister responsible for roads and for planning, creates difficulties, but that has not helped matters to progress. However, I fully understand and accept the Minister's difficult position in those circumstances.
Since the consultation exercise took place, further developments have occurred. The Welsh Office and Clwyd county council have given the go-ahead for a third Dee crossing that will bring more traffic to Flint. The proposed crossing will reach Wales some two miles south of Flint, with the resulting predicted traffic flow in Flint rising from 14,000 vehicles a day to 24,000, according to local county council estimates. It is estimated that 12 per cent. of that traffic will be new traffic as opposed to diverted traffic.
The construction of the third Dee crossing will also result in some redistribution of traffic within Flint town centre and in respect of its routing either via the A5119 to Northop and on to the A55 or the A548 towards Oakenholt. My hon. Friend the Member for Alyn and Deeside (Mr. Jones) and I fully support the idea of the Dee crossing, but it must be accepted that it will cause additional traffic to come into Flint in my constituency. Although my hon. Friend the Member for Alyn and Deeside welcomes the proposal which will relieve traffic in his constituency, it will cause problems for my constituency. However, we are at one on the issue.
The problem in a nutshell is that there are two possible routes for a bypass through Flint. One of those routes is wanted by the people of Flint, but that route has been refused following a decision by the Secretary of State. The other route is very much opposed by the people of Flint while traffic continues to build up and there is likely to be more traffic in future.
From the 1990 public inquiry and the 1992 public consultation exercise, it is known that local opinion is strongly against an inland route and in favour of a coastal route while Cadw and all national and local environmental groups are strongly against a coastal route and have no objection to the inland route. As you will appreciate from that brief history, Madam Deputy Speaker, the solution to the problem will not be straightforward.
In essence, the dilemma is that, although almost everyone agrees that a bypass is needed, the public have forcefully rejected an inland route and a coastal route has been rejected by the Secretary of State on the powerful grounds of adverse environmental impact on an area of international importance in conservation terms. Faced with that, what are the solutions? In the wider context, we can all agree that it would be desirable to reduce the traffic entering Flint.
I should like to see less reliance on the car and the internal combustion engine. Major investment in British Rail to take passenger transport and freight on to the railways would be welcome. Similarly, more tourists should be carried by rail and it would be perfectly adequate for north Wales if that could be achieved. In


addition, improvements in public transport to service Flint and the coastal towns would be welcome, as would other measures.
In the short term, despite all those issues that could and should be addressed by all involved in transport in Clwyd, there will still be a need for a bypass. I hope that the Minister will tonight address two key areas in particular that will help to break the current impasse.
I would welcome an honest opinion from the Minister, as the strategic Minister for roads in Wales, about his view of traffic in Flint, the implications of the Dee crossing for traffic in Flint and for the coast road and the merits of the routes that have been proposed to date. I hope that the Minister will agree that a bypass is needed. It would be a great help to my community if he would recognise that this evening.
Also, and more important, I hope that the Minister will address another issue. Does he agree that it would be helpful at highways and planning levels to have informal discussions about traffic on the A548 between officers of the Welsh Office and members and officers of Clwyd county council? We currently have an impasse—no coastal bypass, no inland bypass, and more traffic. I recognise the difficulties for the Minister with his split responsibilities, but I still hope that he will agree that open discussions with the county council on how to resolve an issue that everybody agrees exists would be in the best interests of all.
Is there a modification—for example, to the coastal route—that would be better received by the Welsh Office? Is there assistance that the Welsh Office could give to examine positive options for the bypass in other areas? After all, in his own constituency of Conwy, the Minister has seen miracles worked in respect of a bypass. The need for dialogue is vital. No one in the county council wants to follow the path of resubmission of a revised coastal route, only to face planning bog-down, further inquiries, further costs and a negative result—a costly path at public expense.
No one in the county council wants to proceed with an inland route that remains unacceptable to the people of Flint—the very people whom it is designed to assist—yet, without dialogue, impasse will continue to reign and the misery of traffic in Flint will worsen. I do not believe that the discussions that could take place would be prejudicial. In the light of the impasse, the Welsh Office surely has a duty to examine and assist in the strategic view of the bypass issue.
My firm view remains that a revised coastal route is achievable, that the environmental concerns of that route remain far less damaging than the inland option and that of no action. All that I ask is that, at the very least, the two parties that can most influence the situation, the Welsh Office and the county council, meet, talk and examine the options on a non-committal basis. As the Member of Parliament for Flint and a resident of Flint, I have called for this debate because it remains an issue that is for the well-being of my community. People in Flint need traffic peace. Industry in Flint needs sound infrastructure. Tourists visiting north Wales and travelling through Flint need trouble-free travel. Above all, the environment in Flint needs to be protected in a modern age.
It is not acceptable to my community to face the prospect of an increase in traffic in Flint to 24,000 cars a day in coming years. That is the worst of all options, and

I would be failing in my duty as the Member of Parliament for the town if I did not bring it to the attention of the House this evening.

The Minister of State, Welsh Office (Sir Wyn Roberts): As the hon. Member for Delyn (Mr. Hanson) is clearly aware, responsibility for the local road network within Delyn rests with Clwyd county council. The A548, which passes through Flint, is such a local road, and improvements are the responsibility of the county council. A number of improvements to the A548 have been undertaken, and others are planned to help to meet the needs of the area.
The statutory planning procedures, which involve wide consultation with the public, ensure that the impact of significant new road proposals are fully and publicly appraised where necessary. Those procedures apply as much to the proposed Flint bypass as to other major proposals.
Clwyd county council, as local highway authority, undertook a feasibility study in 1983 to assess possible routes to bypass Flint. Of the six routes originally chosen, four were rejected and two remained—an inland route and a coastal route.
In 1985, as the hon. Gentleman described, the county council carried out a public participation exercise on those two routes. Almost 800 people responded, and 79 per cent. of local residents wanted a bypass and 82 per cent. of the respondents wanted the coastal route. There was, however, strong opposition to both routes on environmental grounds.
The authority subsequently decided on the coastal route, and in 1989–90 the scheme was conditionally accepted by the Welsh Office for transport grant support to meet the preparation costs involved in developing the proposal.
The design of the scheme and the resolution of statutory requirements were always matters for Clwyd county council. In keeping with normal procedures, it sought to obtain planning permission for the road, using powers under regulation 4 of the Town and Country Planning General Regulations 1976—under which the county council was empowered, subject to certain conditions, to grant, by making two resolutions, planning permission for developments that it proposed to undertake itself.
The proposed development attracted significant objections. Organisations such as the Countryside Commission, the Nature Conservancy Council, the Royal Society for the Protection of Birds, the Cambrian Archaeological Association, the Clwyd-Powys Archeological Trust and the Deeside Naturalists Society were concerned about the potential environmental impact.
There were requests for the Secretary of State to call in the planning application for his own determination, and they were given the most careful consideration. The Secretary of State's long-established approach is that applications should be called in for him to determine only when they raise planning matters of more than local importance. That approach recognises that matters of day-to-day importance should properly be resolved by elected local authority members accountable to the communities that they serve.
Only in particular circumstances, when matters of more than local significance are raised, will there be justification for taking matters out of local hands. In the case of Flint bypass, the then Secretary of State concluded that there were sufficient grounds for intervention. As a consequence, the county council was required in effect to make application to the Secretary of State for planning permission to construct the bypass on the coastal route.
Two main areas of concern underlay that decision. One related to the possible effect on Flint castle. The castle and town was the first to be planted in north Wales by Edward I, and there was concern that the bypass might have an adverse effect on both the castle and its environs—particularly in terms of the area's appearance, in forming a physical barrier between the town, the castle and the sea.
The other concern was that the route proposed by Clwyd county council encroached on a site of special scientific interest and bird habitats of international and national importance. There was concern that the road would destroy part of those protected areas and could disturb bird life over a wider area because of the noise and movement likely to be generated.
In the light of those wider concerns, the proposed development was called in by the then Secretary of State on 16 August 1989 and arrangements were made for a public local inquiry, which began on 6 March 1990. It considered the likely effect of the coastal bypass route on Flint castle and on conservation, and in relation to national and local planning policies, and the likely environmental impact on the immediate and surrounding areas.
Following a full inquiry and receipt of the inspector's report, the then Secretary of State gave careful consideration to the proposal and issued his decision letter on 17 September 1990. He accepted the inspector's conclusion that there was need for a bypass for Flint on traffic and economic grounds, and that the proposed coastal route would be an extremely intrusive and incongruous element in the landscape of the Dee estuary which no ameliorating measures could render visually acceptable. Further, it was acknowledged that the proposed bypass would cause unacceptable harm to the Dee estuary's natural habitat which would not be rendered acceptable by the proposed measures.
During the inquiry, evidence was presented on the planning merits of the alternative inland route. The Secretary of State concluded that examination of that alternative route was a material consideration in the application. He did not consider that his role was to make a choice between the routes, but confined his consideration to whether the need for the development could be met elsewhere.
The detailed appraisal of the two routes, and of any other alternatives that may become available, is a matter for the county council following appropriate consultation. However the Secretary of State was not satisfied that it had been clearly demonstrated that there was no alternative route. He agreed with the inspector that, on the basis of the evidence provided to the inquiry, there was no reason to suppose that the coastal route was the only way to provide a bypass for Flint. Therefore, the requirement to build it on this route was not demonstrated. In the absence of

convincing evidence ruling out alternative routes, the Secretary of State concluded that the proposed route was unacceptable because of its effects on Flint castle and its setting, the landscape quality of the Dee estuary and the unacceptable harm to the natural habitats of the estuary. Having issued his decision, the jurisdiction of the Secretary of State in the matter ended. The provision of the bypass and consideration of the route it must take remain the responsibility of Clwyd county council as the local highway authority.
I fully understand and appreciate the arguments already put forward by the hon. Gentleman and others for a bypass for Flint. Indeed, the Welsh Office accepted those arguments when it conditionally accepted the proposed bypass for transport grant as long ago as 1989–90. That said, the responsibility for taking forward plans to provide the road must rest with Clwyd county council as the local highway authority. The county council must reconsider how best to proceed using the established procedures.
The county council may decide to proceed to seek planning permission for the inland route on which it consulted the local community in 1992. It may also, of course, decide to re-examine possibilities for providing a route along the coast. Clearly, whichever option is chosen, the county council will need to consider local opinion fully and to consult bodies with particular environmental interests. Whether it decides to proceed with one or two route options. the resulting planning applications will be referred to the Secretary of State so that consideration can be given to whether call-in would be appropriate. I must again stress that any consideration of call-in would be made on the basis of whether the proposed development raised planning matters of more than local significance. I cannot prejudge whether an application will be called in.
The hon. Gentleman asked for a meeting between officials of Clwyd county council and the Welsh Office to consider the way forward. The Secretary of State has well-defined responsibilities, which have already been used, to call in and determine the county council's earlier planning application for a bypass following a coastal route. The Department would, of course, be ready to advise on procedural matters. Should the council be unsure about how it might proceed, I suggest that it writes to me setting out the procedural issues on which it requires guidance.
But I must emphasise that the Department's involvement is inevitably restricted by the need to avoid prejudicing my right hon. Friend's statutory position. It will not be possible for Welsh Office Ministers or officials to advise on the merits of individual schemes.
There is continued strong support for the need to bypass Flint so as to improve the living conditions of its residents, to ease congestion on the A548 and to contribute to the environmental and economic improvements taking place in north-east Wales. Given this, it should be possible for the county council to work with Delyn borough council, the local community, agencies and interested groups to agree a way forward which would result in the early implementation of the scheme. The hon. Member rightly raised the issue of increased traffic problems in Flint that might arise following completion of the third Dee crossing. The county council is aware of the potential problems and while it sees a bypass of Flint as the long-term solution, it does, I understand, believe that any


increase in traffic through Flint, following the opening of the crossing, can be dealt with by traffic management measures.
The Dee crossing and Flint bypass can each be justified in its own right. The previous Secretary of State was pleased to announce last year that resources will be made available to start the crossing in 1994–95; delaying that until a solution has been found to the Flint bypass would prolong unnecessarily congestion in Shotton and Connah's Quay, and the problems of access to the Deeside industrial park.
The hon. Member has raised an important issue, relevant both to his constituents and to the wider public. An efficient road network is vital to our economic welfare. It contributes to prosperity at both national arid local

levels. The hon. Member is fortunate to represent a constituency in a part of Wales that has seen substantial improvements in the road network. The A55, a trunk road for which the Welsh Office is responsible, provides a high quality link to the British and European motorway networks, a link to markets and to prosperity. I am sure we shall see further developments in future years.
I must stress once again to the hon. Gentleman that the planning for the Flint bypass is a matter, in the first instance, for the county authority. If there are procedural difficulties, I am only too anxious to help. However, I cannot assist the council in the choice of route to put forward.

Question put and agreed to.

Adjourned accordingly at one minute past One o'clock.